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MPC predicts 5% inflation peak soon

The Bank of England’s monetary policy committee has warned that rising food and utility prices could push inflation to more than 5 per cent in the coming months.

The minutes from the July MPC meeting reveal inflation could peak at a higher level than the MPC first thought. Inflation was 4.2 per cent in June, up from 4.5 per cent in May. The notes say: “Despite the fall in CPI inflation in June, it is likely that inflation will rise further, to over 5 per cent, in the coming months.

“In the light of recent developments in utility and food prices, the peak in inflation is likely to be a little higher and come sooner than the committee previously expected.”

However, the MPC says inflation is likely to move back towards the Government’s 2 per cent target in the medium term as price rises subside.
Meanwhile, seven members voted to keep the base rate at its record low of 0.5 per cent. Spencer Dale and Martin Weale voted to increase the base rate by 0.25 per cent.

Adam Posen was the only member to vote for an increase to the programme of quantitative easing, calling for an increase of £50bn to £250bn.
Capital Economics senior UK economist Vicky Redwood says: “With GDP growth still likely to be sluggish in 2013, it is possible that interest rates will not rise until 2014.”

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