Better growth and lower inflation?

The latest quarterly inflation report from the Bank of England suggests the UK might experience stronger growth and lower price inflation than previously forecast.

Such an outlook is bound to boost investor sentiment, ahead of Bank of England governor Sir Mervyn King stepping down from his role and handing responsibilities over to Mark Carney.

King explained, “Today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago.

“That is the first time I have been able to say that since before the financial crisis.”

“Our economy still faces the challenge of a substantial rebalancing following the abrupt reassessment of future incomes and spending opportunities triggered by the crisis. This has not been a typical recession, and it will not be a typical recovery.”

Price inflation as measured by the Consumer Prices Index (CPI) is still expected to stay above the 2% Bank target. It is however expected to fall below 2% by 2015.

This inflation forecast is the result of lower external pricing pressure and a gradual revival in productivity growth curbs increases in domestic costs.

Forecasts from the Bank of England are largely driven by an interest rate outlook which is guided by market expectations. These currently see the Bank Rate remaining at 0.5% until late 2016.

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