BoE: 'Considerable uncertainty' over inflation

The Bank of England warned today there was "considerable uncertainty" over what will happen to inflation in the short and medium term.

In the its quarterly inflation report, the Bank said it did expect inflation to return to its target in the next couple of years.

This could see interest rates being held at the current rate of 5.25 per cent for some time, though financial markets are predicting two more 0.25 percentage point rises in the long term.

The Bank sets interest rates in an attempt to keep the consumer price index (CPI) measure of inflation, as close to its two per cent target as possible.

"The [interest rate setting Monetary Policy] Committee noted at its February meeting that the central projection, under the assumption that Bank rate followed market yields, was for inflation to settle around the target in the medium term, though the near-term profile was unusually volatile," the Bank of England report noted.

"Moreover, there was considerable uncertainty about the path of inflation, both in the near term and further ahead. Given that outlook, and bearing in mind the balance of risks, the committee judged that no change in Bank rate was necessary at that meeting to bring CPI inflation back to the target in the medium term."

A further clue as to which way interest rates will go in March will be revealed when the minutes of the last meeting of Monetary Policy Committee are published on February 21st.