Bank of England: inflation to keep falling as we avoid recession

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Updated on 15 February 2012 | 5 Comments

Inflation on track to go below 2% but economy will "zig-zag" this year.

The Bank of England has released its latest quarterly inflation report, which predicts that inflation is expected to dip below its 2% target by the end of this year.

But it has revised its projections for the longer term. It is now forecasting that inflation will most likely hover around the 1.8%-2% mark until 2015, higher than the 1.3% mark it projected in its previous report in November.

The Bank also combines and averages other forecasts, which predict that inflation will be at 1.8% by the first quarter of next year, 1.9% in the first quarter of 2014 and 2.2% in the first quarter of 2015.

Annual inflation fell back to 3.6% in January, according to the Office for National Statistics, but it is still outpacing pay, which is rising at just 2%.

“The path to recovery is likely to be slow and uncertain,” Bank of England Governor Sir Mervyn King said at a press conference.

“The biggest risk stems from weakness in the Euro area,” he added.

He also said that the Queen’s Diamond Jubilee could have a negative effect on the economy (although you could argue it might encourage us to  spend more), but the nation is likely to “zig-zag” in and out of growth this year.

No double-dip recession

However, the Bank has forecast growth of around 1% for this year and that there will be no double-dip recession this winter.

It forecasts growth of around 2% in the first quarter of 2013 and around 3% in the first quarter of 2014.

An aggregation of growth projections by other forecasters predicts that the economy will grow by 1.1% in the first quarter of 2013 and 2.1% in the first quarter of 2014.

Meanwhile, unemployment has risen again, with the latest figures showing an increase of 48,000 people, pushing the total number to 2.67 million. And the unemployment rate is 8.4%, its highest level for 16 years.

More: How to get paid if you lose your job | Why pumping money into the economy is bad news for retirees

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