The Bank of England thinks inflation in the UK could surge over 5% in 2011, according to the latest Monetary Policy Committee Minutes.From the minutes (emphasis ours):
For some members, the case for an immediate withdrawal of some of the current monetary stimulus remained compelling. For them, the upside risks to the medium-term inflation outlook from the possibility that inflation expectations might increase and the potential for further global price pressures outweighed the downside risk associated with uncertainty about the strength of the recovery. The near-term outlook for inflation had deteriorated further, with a material chance that inflation would exceed 5% later this year.
After coming in with a scorching hot 4.4% year-over-year increase in CPI in February, this is more unwelcome news. At that meeting in early March, members decided against raising rates, but sounded the alarm about rising fuel costs.
From the minutes (emphasis ours):
Unless the increase in the oil price quickly reversed, it would very likely lead inflation in the near term to rise further above the target than previously expected, adding to the risk that expectations of medium-term inflation would rise. But, in addition, higher oil prices related to such supply concerns might be expected to dent global growth prospects and, potentially, business, household and investor confidence. They would also be likely to result in a reduction in the level of real incomes and hence spending by UK households.
Right now the committee is split on whether surging fuel costs might dampen economic growth on their own, making a rate hike an exacerbation of an already difficult situation.
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