The latest quarterly inflation report from the Bank of England says inflation according to the consumer price index should move up towards the 2% target as business investment and consumer spending continue to grow.
The recently introduced 4% base rate should put inflation on a path to meet the CPI target by late this year, but both upside and downside risks are still great, the BoE warns.
GDP growth in the UK continues to recover, with third quarter 2003 growth pegged at 0.9% and signs that the recovery is becoming more broadly based.
Prices in the housing market continue at an unsustainable rate, however, this should moderate later in the year as people realise their disposable incomes are growing less fast. This realisation could hit household spending in general.
Private sector investment is forecast to keep growing through this year, as companies plough rising sales and profits back into their businesses.
The dollar-sterling exchange rate could still move inflation up or down depending on how import prices are affected.
Higher utility prices could push inflation up faster by the middle of the year , while supply capacity – the ability of factories to make widgets and services to be provided - could start shrinking thereafter, also contributing to the rise in consumer prices.
GDP growth around the world continues to improve, and is holding firm in the US, while China is leading growth in the Asia region, the Bank says.IFAonline
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