The governor of the Bank of England on Thursday warned inflation was likely to be “a bit bumpy” this year but insisted there was little reason to panic over the medium term. His comments come shortly after the central bank upgraded its outlook for the U.K. economy. The central bank now believes the U.K. is on track for growth of 7.25% this year, slightly above analyst expectations and up from a previous estimate of 5%. The U.K.’s comparatively quick vaccination rollout, a decline in the number of Covid-19 cases nationwide and the gradual easing of restrictions on economic activity were cited as reasons that led the central bank to revise its 2021 growth forecast. On inflation, the BOE said it expects the consumer prices index to temporarily climb above its 2% target toward the end of this year, predominantly driven by developments in commodity prices. It sees inflation returning to around 2% over the medium term. The consensus is that there will be an upturn in inflation this year because there are so-called base effects. Energy prices were very low this time last year and that’s coming out, so these effects will take place. Inflation is going to be a bit bumpy this year in that sense as these base effects come in and out. At the moment, though, the Bank of England is not seeing evidence that alarms them in terms of the likelihood that this become embedded in higher inflation. The BoE will, of course, be watching it very carefully.

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