In the letter to George Osborne that was triggered by a 4% increase in consumer prices last month, King said inflation was “likely” to return to the Bank’s official 2% target on “the assumption the Bank rate increases in line with market expectations”.
Analysts interpreted the letter as a declaration rates, which have been held ata record low of 0.5% for almost two years, will rise a number of times in 2011, beginning in May.
The City will be looking for more clues in today’s quarterly inflation report as to what will happen to rates over coming months, while the strength of the economic recovery will also be under the spotlight after a shock 0.5% contraction at the end of 2010.
The Bank is due to release its quarterly inflation and growth forecasts at 10.30am, followed by a press conference chaired by King.
Philip Shaw, chief economist at Investec and quoted in the Guardian, said: “The report will give us a better idea of the way that members view inflation risks and therefore should shed some light on interest rate prospects.”
