Pandemic will lead to more inflation…eventually

The economic recovery from the COVID-19 crisis may not push CPI inflation above 2.0% for a prolonged period until 2023, although there is a risk that it happens sooner. And further ahead, the government’s desire to use fiscal policy to achieve its political aims creates a clear incentive for it to change the Bank of England’s remit to ensure that interest rates remain low. As a result, over the next 10 to 20 years inflation of 2.5% rather than 2.0% may become the norm.