In last week's Bank of England quarterly inflation report, the bank was optimistic about keeping inflation within its target range. It has made a central projection that the underlying inflation rate, (excluding mortgage interest payments), will be at 2.5% by the end of Parliament in 1997, well within the range of 1%-4%.
However, it stated that the probability of it being in the lower half of the range is less than the probability of it being in the upper half.
In the meantime the bank forecast that inflation will rise further this year before GDP growth begins to slow. The underlying inflation rate is forecast to climb to 3% in March, before peaking a little higher in the third quarter of this year. The city is currently forecasting that the underlying rate of inflation was +2.8% (y/y) in January, up from December's +2.5% (y/y).