By William L. Watts
LONDON (MarketWatch) -- Inflation is likely to remain above the Bank of England's 2% target in 2011, but eventually fall back, the Bank of England said in its quarterly inflation report on Wednesday. Consumer price inflation, which stands at an annual rate of 3.1%, has been boosted by the expiration of a cut in the value-added tax and the past depreciation of the British pound, the report said. A further VAT hike in January and rises in import prices will contribute to above-target inflation next year, but inflation will eventually fall back due to the "persistent margin of spare capacity" in the economy. The timing and scale of the decline remains "highly uncertain," the report said. Assuming the bank's official interest rate moves in line with market expectations and the central bank leaves its asset-purchase program on pause, "the chances of inflation being either above or below the target" at the end of the two-year forecast period are "roughly equal," the report said.
