THE Bank of England expects inflation to top three per cent due to the sheer strength of the economic recovery.
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The Bank warned the resulting near-term pressure on prices from high demand and energy costs could “prove somewhat larger than expected”.
The prediction for inflation came after the key measure of the cost of living hit 2.1 per cent last month, above the Bank’s two per cent target.
Previously, forecasts had indicated a peak at 2.5 per cent.
But the Bank insisted the huge rise will be only “transitory” and should not affect monetary policy.
This means interest rates are unlikely to rise any time soon, say analysts.
The Monetary Policy Committee yesterday held rates at 0.1 per cent and kept its quantitative easing programme at £895billion.
Outgoing chief economist Andy Haldane repeated his call for a £50billion cut to QE after recently warning of the “beast of inflation” but he was outvoted 8-1.
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Sterling was down 0.3 per cent against the US dollar and off 0.4 per cent against the euro.
The tumble came a day after the pound reached its highest level versus the single currency since April.
But Sterling is strong against the euro on a year ago.
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