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Bank hikes growth outlook as King bows out on optimistic note
The final Inflation Report of governor Mervyn King’s term has seen the Bank of England revise up growth forecasts but caution inflation will still likely peak above 3% this year.
The quarterly report maintained its January prediction that inflation, currently at 2.8%, will peak above 3% in the third quarter of 2013.
But elsewhere the report struck a slightly more optimistic tone, suggesting growth will be slightly higher than expected this year and inflation slightly lower over the long term.
The Bank has hiked its forecast for 2013 GDP growth from 0.9% to 1.1%; the Monetary Policy Committee also now expects inflation to fall back to the 2% target, rather than just above it, within the next two years.
The European Central Bank may have cut interest rates earlier this month, but King said UK rates – which have sat at 0.5% for the past 50 months – “at some point, have to get back to a normal level”.
However, he noted markets are currently not expecting a rise in rates for several years, and said negative deposit rates remain “an option on the table”.
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