The Bank of England has said it “remains appropriate” to keep interest rates at their record low rate as it predicted inflation would reach around 2 per cent over the spring.
"Since the monetary policy committee's previous meeting, the news on near-term economic activity had been positive, although the extent to which that news changed the medium-term outlook was less clear," the BoE said.
The current inflation rate of 0.7 per cent is still significantly below the target of 2 per cent, but it is expected to rise substantially over the coming months.
The base rate of interest remained unchanged at 0.1 per cent.
The Bank said inflation was likely to increase as falls in the price of oil during early 2020 fell out of annual comparisons.
It added: "These developments should have few direct implications for inflation over the medium term, however. Inflation expectations remain well anchored.
“If the outlook for inflation weakens, the committee stands ready to take whatever additional action is necessary to achieve its remit.
“The committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 per cent inflation target sustainably.”
Laith Khalaf, financial analyst at AJ Bell added: “The only thing that might prise rates upwards is a bout of inflation, but that would need to be both sustained and structural to compel the Bank of England to tighten policy.
“The Bank will look through rising inflation caused by temporary factors, such as recovering energy prices and would only deem inflation to be problematic if the UK was near full employment, which isn’t going to happen this year, or probably next.”
Yields on the 10-year US Treasury, often seen as a benchmark of borrowing costs across the global economy, have been spiking during early 2021 - reaching a 14-month high of 1.75 per cent today.
Luke Bartholomew, senior economist at Aberdeen Standard Investments commented that the Bank seemed “relatively comfortable" with the idea that market moves in global bond yields reflected an improving growth and inflation outlook rather than an adverse and undesirable tightening in financial conditions.
Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown said that the recent spike in bond yields may be “fuelling worries about just how affordable the government debt pile will be to service over the coming years.”
She added: “But the bank seems to take the position that the expected upturn in prices as the recovery continues, and the jump in oil prices feeds in, won’t lead to a sustained period of higher inflation in the medium term."