Bank of England credibility ‘at risk’
THE growing inaccuracy of its inflation forecasts is putting the credibility of the Bank of England in question and risking a spiral of wage inflation, an expert has warned.
The Bank has justified a policy of keeping rates at 0.5 per cent by insisting inflation will drop back from its current peak of 4.5 per cent in two years.
But a report by Centre for Policy Studies economist Ryan Bourne said inflation was now 3 per cent higher than the Bank predicted last May.
Its forecast for 2001-2004 had been only 0.1 per cent out, but that gap had risen to 0.4 per cent for 2004-2007 and 1.3 per cent from 2007 to 2010.
Mr Bourne said unions and markets could lose faith in the Bank if they suspected it was following a political agenda, instead of tackling inflation, sparking a spiral of big pay demands.
Many experts expect interest rates to rise in the autumn, reaching 1 per cent by the end of the year.