The Bank of England has left the base rate at the record low of 0.25 per cent and upgraded growth forecasts for the next three years.
The Bank now predicts 2 per cent growth this year — up from its 1.4 per cent forecast in November — 1.6 per cent in 2018 and 1.7 per cent in 2019.
Shilen Shah, bond strategist at Investec Wealth & Investment, said despite the revised growth forecast there were hints that the tolerance of a number of Monetary Policy Committee members to higher inflation is close to their limit.
The Bank of England also suggested that slack in the economy may be somewhat larger than previous thought, however inflation is still thought to peak at 2.8 per cent in the second quarter of 2018.
Mr Shah said: “If the strength in the economy continues over the coming quarters, despite the uncertainty created by Brexit, the MPC patience may be further strained.”
Brad Holland, Nutmeg’s senior investment manager, said while inflation is forecast to rise, he thinks the Bank’s numbers are still too low.
Mr Holland said: “The Bank’s inflation outlook is based on upwardly revised economic growth (GDP) of 2 per cent in 2017 and 1.6 per cent in 2018. We think that the UK will do better than this.
“Unemployment continued to fall in the UK in the second half of 2016 – early indications that all is not lost in a post-Brexit era.
“The fall in the value of the pound, along with the post-Brexit easing package delivered in August (including a base rate cut to 0.25 per cent) seems to have sustained animal spirits within the UK: household savings rates have fallen.
“These factors have also maintained the foreign appetite for bargains, ranging from property to retail and tourism.”
emma.hughes@ft.com
