Inflation is set to fall below its 2% target - even if interest rates remain at their record low, the Bank of England says in its Quarterly Inflation Report.
As the UK wakes up to a new coalition government, the Bank said interest rates may stay low for a longer period than markets expect and the pace of economic recovery remains uncertain.
The Bank estimates an inflation rate of around 1.4% in two years' time from the current 3.2% should there be a rise in interest rates and just below 2% if interest rates are kept at their historical low of 0.5%.
It also issued a warning to new Chancellor George Osborne that additional fiscal consolidation may be needed beyond previous Chancellor Alistair Darling's budget plans.
The short-term inflationary projections are higher than those made in February and indicate prices could remain above target but the Bank then says they will slip below target where they will likely remain for a three-year period.
World First chief economist Jeremy Cook says the inflationary report underlines the uncertainly over the UK economy.
"Combined with the 16-year high unemployment figures published earlier today, David Cameron and his team have been provided with a great picture of where the UK economy currently sits: in a bit of a ditch," he says.
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