THE Bank of England has warned that inflation will soar further this year, but insisted surging prices will only be temporary as it kept interest rates on hold.
Latest economic forecasts from the Bank show it expects inflation to pick up to 4 per cent in 2021, against a previous prediction for a peak of 2.5 per cent.
This is double the Bank's target, but it insisted the cost pressures will prove "transitory" and that inflation will return to 2 per cent in the medium term.
Minutes of the decision showed members of the Bank's Monetary Policy Committee (MPC) voted unanimously to hold rates at 0.1 per cent.
One policy-maker - Michael Saunders - voted to cut its £875 billion bond-buying quantitative easing (QE) programme by £45 billion amid fears over the threat of sharp hikes in inflation, but was outvoted by the majority of the committee.
The Bank said: "The committee's central expectation is that current elevated global and domestic cost pressures will prove transitory.
"Nonetheless, the economy is projected to experience a more pronounced period of above-target inflation in the near term than expected in the May Report."
The Bank kept its growth forecast at 7.25 per cent for 2021, as it said gross domestic product (GDP) was set to have risen by a better-than-expected 5 per cent in the second quarter, but will slow to around 3 per cent - weaker than first forecast - in the third quarter.
Its latest set of quarterly forecasts shows it expects the economy to then grow by 6 per cent in 2022 and by 1.5 per cent in 2023, compared to previous forecasts of 5.75 per cent and 1.25 per cent respectively.
The Bank said: "UK GDP (gross domestic product) is projected to recover further over the remainder of the year, reaching its pre-pandemic level in (the fourth quarter of) 2021, with demand growth boosted by a waning impact from Covid.
"Further out, the pace of GDP growth is expected to slow towards more normal rates, partly reflecting the gradual tightening in the stance of announced fiscal policy."
