Bank Rate expected to remain at 0.5% for some time yet

“Moreover, the Bank of England’s story that high inflation is stemming from temporary factors such as high commodity prices and indirect taxes still rings true and once these fall out of the calculation, inflation in 2012 is still likely to fall back below the 2% target. The two successive increases in VAT complicate the Bank’s position, as without these inflation would not have been so high for so long.
“While there is some evidence that high inflation has become entrenched in people’s expectations, thus far there is no sign that this has translated into higher wage settlements and, for us, this is the key.
“To increase rates this early would have been premature and, unless there are signs that wage pressures are building, we can see the MPC holding fire for a while yet. Market expectations certainly look too bullish.”

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