A short-term rise in inflation can be expected, the Bank of England’s Monetary Policy Committee (MPC) has predicted.
In the minutes of the monthly MPC meeting – at which it voted unanimously to make no change to the base rate or the level of quantitative easing – the body said factors including the VAT rate rise will see the consumer prices index rate jump in the months ahead.
However, it stated that this “volatile” activity would not impact on monetary policy unless signals emerged at the same time of stronger “medium term” inflationary pressures.
This might indicate that the MPC expects to keep its base rate low for some time, which may influence consumers looking to take advantage of low rates when searching for financial products.
Another good reason for doing this could be that the economy is set to improve.
Currency broker Caxton FX noted that the MPC’s tone was upbeat, implying it believes fresh growth will trigger the “start of a virtuous upward spiral for the economy”.