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The Bank of England today warned that inflation is set to hit 5 per cent next spring but kept interest rates on hold for now amid fears the economic recovery is weakening.
The latest Monetary Policy Committee report says CPI has already 'risen markedly' to more than 3 per cent amid supply chain 'bottlenecks' and soaring energy prices.
It expects the level to reach 5 per cent by April, inflicting more pain on already-struggling families in the wake of the pandemic.
The MPC believes inflation will still be 'a little' above its 2 per cent target in two years' time - although it should dip lower after that.
The Bank shocked the markets by holding off on raising interest rates, but at a press conference governor Andrew Bailey made clear that that will happen in the coming months.
He pointed to 'near-term uncertainties' over the prospects for the economy, highlighting the impact of the furlough scheme ending and energy prices as two grey areas.
The Bank struck a considerably gloomer tone on UK plc's prospects than before, downgrading growth estimates for this year to 7 per cent from 7.25 per cent, and from 6 per cent to 5 per cent next year.
The Bank shocked the markets by holding off on raising interest rates, but at a press conference governor Andrew Bailey made clear that that will happen in the coming months
The latest Monetary Policy Committee report says CPI has already 'risen markedly' to more than 3 per cent amid supply chain 'bottlenecks' and soaring energy prices
Sterling slumped by almost a cent against the US dollar and the euro, and British government bond prices leapt as investors were wrong-footed by the Bank's announcement.
It delayed a rate rise despite warning gas and electricity tariff increases will see the Consumer Prices Index (CPI) leap from 3.1 per cent to
