Bank of England expect inflation to remain above target for 2 more years

Bank of England (BoE) policy-maker David Miles has argued that the BoE may need to contemplate boosting its programme of quantitative easing by a further £175 billion in an effort to bolster the UK’s sluggish economy.

This comes after the bank’s governor Sir Mervyn King suggested that inflation could sit above its 2% target for a further two years.

Sir Mervyn joined the call for the bank to continue its bond-buying programme this past Wednesday (21^st February), after predicting that inflation could reach at least 3% this summer.

Miles also echoed the idea that inflation “may go a bit higher” in the near term, as economic growth continues to be protracted and productivity continues to fall below trend.

Unstable times head for the economy

Arguing that the UK has not been through “a normal recession”, Sir Mervyn argued that the road to recovery won’t be “normal” either.

"Growth is likely to be weak in the near term but further out a continued easing in domestic credit conditions, supported by the Bank's asset purchase programme and the Funding for Lending Scheme, together with the stronger global backdrop, underpin a slow but steady recovery in output," stated the Governor.

The BoE has predicted that the economy is likely to lift by a figure of 1% in 2013, potentially rising more significantly by 2015.

Joshua Raymond, chief market strategist at City Index, argued that an uncertain economic climate means that the BoE has to weigh a number of factors when outlining a plan for the reversal of the UK’s economic fortunes.

"The Bank remains between a rock and a hard place in trying to strike a balance between the rising pressures of inflation and supporting the economic recovery," he said.

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