Official interest rates in the United Kingdom remained at historically low levels. Under the assumption that Bank Rate rises gradually over the forecast period, that is judged likely to be achieved. The Committee judges that it is currently appropriate to set policy so that it is likely that inflation will return to the 2% target within two years. As slack is absorbed, inflation is projected to rise back to levels consistent with the inflation target. That, along with a lower expected path for Bank Rate than in November, should help to sustain the recent robust expansion in UK domestic demand. Lower energy prices will also boost UK real income growth. The fall in oil prices, together with monetary policy measures taken abroad, should support global demand. Inflation is likely to rebound around the turn of the year as these effects drop out of the annual rate. Inflation is likely to fall further in the near term, and could temporarily turn negative, as falls in energy prices continue to be passed through. The main reason for this was the steep fall in wholesale energy prices during the second half of last year.
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