The United Kingdom continued to recover from the recent deep recession. Global output and world
trade grew robustly, although fragilities remain. The UK recovery is expected to continue, supported
by expansionary monetary policy, further growth in global demand and the past depreciation of
sterling. GDP growth is judged to be a little more likely to be above its historical average than
below it for much of the forecast period. Even so, the large fall in output during the recession means
that some spare capacity is likely to persist over the forecast period.
CPI inflation remained well above the 2% target, elevated by the restoration of the standard rate of
VAT to 17.5% and the past depreciation of sterling. Inflation is likely to stay above the 2% target
throughout 2011, given the forthcoming rise in VAT and continuing increases in import prices. As
the impact of those factors on inflation diminishes, inflation is likely to fall back, reflecting
continuing downward pressure from the persistent margin of spare capacity. But the timing and
extent of that decline in inflation are highly uncertain. Under the assumptions that Bank Rate
moves in line with market rates and the stock of purchased assets financed by the issuance of
central bank reserves remains at £200 billion, the chances of inflation being either above or below
the target by the end of the forecast period are judged to be roughly equal.
To read the rest of this report click the link below:
http://www.bankofengland.co.uk/publications/inflationreport/ir10novo.pdf
