BOE Nears Its 2% Inflation Target for First Time in Three Years

Updated on
  • Economists forecast 1.9% rate for January, up from 1.6%
  • Price growth expected to pick up further through 2017

U.K. inflation is almost back on target.

Economists forecast that consumer-price growth accelerated to 1.9 percent in January, part of an upward trend that’s expected to continue through this year. While the prediction would leave inflation just shy of the Bank of England’s 2 percent goal, last hit in 2013, there have been upside surprises for the past two months. The 1.6 percent pace recorded in December beat a 1.4 percent median estimate.

Forecasts in the survey for January range from 1.7 percent to 2.1 percent.

With energy prices rising and the weaker pound pushing up import costs, the Bank of England sees inflation reaching 2.8 percent early next year. Without a matching pickup in wages, that may squeeze households and put a damper on consumer spending, the main engine of growth. Sterling has plunged 16 percent since the June vote to leave the European Union, though it’s been relatively stable in recent months.

While Governor Mark Carney has kept the central bank in a neutral stance -- where interest rates could go up or down depending on the outlook -- some policy makers have begun to sound the alarm on inflation. Monetary Policy Committee member Kristin Forbes said this week that the pace of the economy, coupled with the outlook for price growth, could mean tighter policy will be justified soon.

“I am beginning to grow uncomfortable with the trade-off embodied in our current forecast,” she said on Wednesday. “If the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in bank rate.”