British inflation rises rapidly

British inflation is on course to rise rapidly this year, to well above its 2% target, throwing into sharper relief splits at the Bank of England about how vulnerable Britain is to a more lasting rebound in prices after the COVID-19 pandemic.

Consumer price inflation, the measure targeted by the BoE, was just 0.7% in January but economists at Bank of America and Pantheon Macroeconomics see it reaching 2.5% by late this year. The BoE’s forecast last month was just below 2%.

Most of the increase is likely to come in the next few months, due to the raising of a price cap for many domestic energy bills from April and a 50% surge in oil prices since effective COVID-19 vaccines were announced last year.

The impact of higher prices will be magnified as they are compared to levels a year ago, when demand slumped at the start of the pandemic, briefly pushing oil prices below zero and sending British inflation to its lowest since 2015.

via Reuters