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BoE tips inflation to hit 2% target by year-end

BoE tips inflation to hit 2% target by year-end

Category: Savings

Updated: 15/02/2012
First Published: 15/02/2012

MONEYFACTS ARCHIVE
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The Bank of England believes inflation will slow to its 2% target by the end of this year and drop to 1.8% by 2014.

According to its latest quarterly inflation report, the Bank thinks inflation is likely to fall sharply in the near term, as the impact of the increases in VAT and petrol prices drop out of the twelve-month comparison.

Further falls are then anticipated as wages and prices seem unlikely to grow significantly, although the Bank admits the extent to which inflation will decline and the likely pace of that moderation remain uncertain.

Although the prediction for two years' time of 1.8% is higher than the Bank's previous estimate of 1.3%, it added that inflation is 'somewhat more likely to be below the target than above it' for the forecast period.

The Office for National Statistics confirmed on Tuesday that consumer prices index inflation dropped to 3.6% in January, down from 4.2% in December

The fall provided some much needed respite to savers who have seen the purchasing power of their money diminish as inflation has soared.

Following yesterday's news, Moneyfacts.co.uk revealed that some 47 savings accounts are currently available which pay at least 4.5% per annum, the rate needed by basic rate taxpayers to prevent their savings pot effectively eroding away.

Last month, when a rate of 5.25% was needed to maintain purchasing power, only eight accounts paid a high enough rate.

Elsewhere within the inflation report, the Bank said economic growth in the UK is likely to remain weak in the near term before gradually strengthening as household incomes recover.

It warned, however, that the economy still faced 'substantial challenges' from the problems currently pervading the eurozone, troubles which the Bank said 'continue to pose a significant threat to the recovery'.

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