Where is inflation heading? Were the Bank of England wrong?

Financial News

Everyone knows inflation has risen in the past few months, however until now the Bank of England, whose job it is to control inflation, have said they believe this is a short term rise, it seems that they are now not so sure.

Previously the Bank had said inflation would peak at 3%, they have now revised this forecast to 3.5%, furthermore they believe that the Consumer Price Index (CPI) will remain well above the 2% target over the coming months.

However they went on to say that inflation will fall later in the year and stay below the 2% target for years to come.

The minutes of the last meeting of the MPC (Monetary Policy Committee) show that members are divided on the future direction of inflation saying ‘It was likely that inflation would moderate during the course of 2010, but the pace and degree of that moderation was highly uncertain. And further sharp movements in the exchange rate and energy prices could introduce additional significant near-term volatility,’ the MPC said.

The MPC believe recent sterling weakness, especially if it continued, would add to the upward pressure on inflation at the same time as higher petrol prices and the restoration of the standard rate of VAT to 17.5% had lifted prices relative to one year ago.

So what does this mean to you?

The major losers in a period of relatively high inflation will be savers who will have been hoping the rise in inflation was only a short term spike that would not erode their savings for too long.

Our recent article shows how few savings accounts are paying an interest rate sufficient to keep pace with inflation, read this article here.

The need for savers to search the market for accounts paying higher rates of interest has rarely been greater and it would seem we will be in this position for some time to come. We have best isa savings rates which will help you save for your future.