CPI Inflation Forecasts from Bank of England.

Yesterday, the Bank of England released its inflation forecasts for 2008 and 2009. It suggests that if base rates are kept at 5.25% then inflation will stay close to 2%. However, if they cut interest rates to 4.5% (as many in the City have been predicting) then inflation is likely to breach the 3% target.

The Bank, therefore, have a difficult balancing act. On the one hand we have rising inflation (from cost push factors, especially food and energy) but we also have a slowing economy.

Although, the Bank are keen to point out the weaknesses of the economy, they seek to avoid the gloom that has surrounded some sectors of the economy. The Bank suggest this year may merely invovle a rebalancing. Sectors that have done well previously will be slowing down. These sectors include:

1. Housing Market
2. Financial sector in city of London
3. Mortgage lending
4. Consumer Spending

However, other sectors which have struggled in the past, could do better in the coming years. These sectors include:

Manufacturing, export sector.

The inflation forecast also came out on another good day of employment figures, with falls in unemployment.

For more details see:

• Mortgage interest rate forecasts
• Bank of England Inflation forecast