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BoE: Inflation will remain above target until 2015

Inflation is likely to remain above the Bank of England’s target of 2 per cent for at least another two years, according to the Bank’s latest inflation report.

Increases in university tuition fees and domestic energy bills have added to inflation more recently and the Bank admits it is likely to rise above the current rate of 2.7 per cent.

A gradual revival in productivity after this point is expected to dampen growing household costs, and start to bring down inflation to around the 2 per cent target by 2015.

Challenges to this remain in the form of continued weaknesses in the eurozone.

Attempts to bring inflation down to the target sooner by removing the current policy stimulus ahead of schedule was dismissed by the Monetary Policy Committee on the basis it could derail the recovery and cause price instability.

UK GDP is estimated to have fallen by 0.3 per cent in the fourth quarter of 2012 as the boost provided by the Olympics started to unwind.

Growth is expected to remain weak going forward, but easing in domestic credit conditions, along with the continuation of both the asset purchase programme and the Funding for Lending scheme, will underpin a slow recovery.

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