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Weak pound will keep inflation above 2% until 2016
by Sarah Miloudi on Mar 20, 2013 at 10:36
Inflation is set to remain above the Bank of England's 2% target until 2016.
The consumer price index (CPI) broke above its previously steady rate of 2.7% level during February and the Bank of England's monetary policy committee (MPC) said rising costs and a depreciating currency would keep the inflation rate high for 'much of the next three years'.
Adding to the squeeze on household budgets, while the property market is showing signs of 'thawing', the MPC said improvements in growth continued to lag markets.
While this is not just a problem for Britain, with the euro area particularly vulnerable, the UK's recovery is in the spotlight as chancellor George Osborne prepares to present his 2013 Budget later today and after ratings agency Moody's stripped Britain of its AAA status.
The MPC, which voted unanimously to keep rates and quantitative easing on hold, said growth continued to look fragile even though there had been signs of improvement.
The committee's comments were slightly more cautious than governor Mervyn King's (pictured) last week when he said the recovery was 'in sight'.
They said: 'Globally, indicators of near-term activity in the manufacturing sector had fallen back in February, despite the perceived reduction in economic uncertainty in recent months.'
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