Inflation to fall below target while interest rates stay low - BoE

Inflation is set to fall below its 2% target - even if interest rates remain at their record low, the Bank of England said in its quarterly inflation report.

As the UK wakes up to a new coalition government, the Bank said interest rates may stay low for a longer period than markets expect and the pace of economic recovery remains uncertain. The Bank estimates an inflation rate of around 1.4% in two years' time should there be a rise in interest rates and just below 2% if interest rates are kept at their historical low of 0.5%. It also issued a warning to new Chancellor George Osborne that additional fiscal consolidation may be needed beyond previous Chancellor Alistair Darling's budget plans. The short-term inflationary projections are ...