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Wednesday May 11, 10:31
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Bank of England expects inflation to break 2% barrier
(by Julia Jenson)
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The Bank of England has said that inflation may head higher than the self-imposed barrier of 2% in 2005, retreating below this level next year. The Bank has expressed the risks to its inflation forecast as ``broadly balanced,’’ in contrast to the phrase of February Inflation Report that said the risks were downside.
``Inflation has risen more sharply than expected,’’ the bank said in today report. The inflation projection is ``somewhat higher in the first year than in February but lower further out, reflecting the appreciation of sterling and the more subdued prospect for activity.’’
Despite the rise in consumer prices that constituted 1.9 percent in March, in dangerous proximity of the Bank’s target of 2 percent, UK’s central bank left its interest rate unchanged at 4.75 percent for the ninth month in a row as economic indicators showed a slowdown in consumer spending. The Bank forecasts expansion in the UK economy to be at 2.6% this year in contrast to 2.75 growth rate it projected in February. The balance of risks to growth is seen ``on the downside.’’
The acceleration in the rate of inflation will result from increase in water and sewage prices, with subsequent deceleration expected ``as the impact of higher oil prices and other transient influence on the inflation rate abate.’’
British economy is definitely cooling, with the property boom waning, retail sales posting the largest annual decline in April, and the manufacturing had the largest drop in three years in March. Growth in the UK is still expected to be higher than in the eurozone that is projected by the European Commission to grow by 1.6% in 2005, down from the previous target of 2%.
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