Andrew Bailey (left) is governor of the Bank of England (Justin Tallis/PA)
(Picture: PA Wire)The Bank of England has been forced to increase its forecast for peak inflation yet again, admitting price rises are likely to reach 7.25% in April.
The central bank said on Thursday that inflation was likely to hit 6% this month and next before peaking at 7.25% in April.
In December, the Bank of England had forecast inflation would peak at 6% over spring.
The Bank’s Monetary Policy Committee (MPC) said the raised forecast “mainly reflects global energy and tradable goods prices”, which have risen in recent months.
Higher global gas prices have forced Ofgem to announce a big hike in the energy price cap, which will come into force in April and is a major contributor to the inflation peak. Earlier on Thursday the energy regulator announced that energy bills were set to rise by almost £700.
The MPC voted 5-4 to double the UK’s interest rate to 0.5% as the Bank of England tries to tame soaring inflation, which is already running at a 30-year high of 5.4%.
The four dissenting voters on the MPC wanted an even bigger hike to 0.75%, which would have been a level of increase not seen since the Bank gained its independence in 1997.
Victoria Scholar at Interactive Investor said: “The big question is whether these incrementally hawkish monetary moves, which filter through the demand side will be able to offset the supply side inflationary pressures from rising energy bills, supply chain bottlenecks and labour market tightness.
“The central bank is walking a tightrope, attempting to curtail inflation while cautiously steering clear of a recession.”
If it come to pass, 7.25% would mark a fresh 30-year high for inflation. It reached 8.5% in 1991.
Hinesh Patel, a portfolio manager at Quilter Investors, said he expects “a sharp decrease” in inflation in 2023 but price rises are likely to remain elevated for much of this year.
