The fan chart below depicts the probability of various outcomes for CPI inflation in the future. This is the famous fan chart.
The MPC’s forecast by quarter — based on market rates and £200bn of quantitative easing — is reported in the first column. The second reports the probability that inflation will be below 1 per cent.
|Year and quarter||MPC inflation forecast %||Likelihood of inflation being less than 1 %|
From 2012 Q1, inflation is below the target. There is a significant chance that inflation will be below 1 per cent. But this is all based on a very optimistic growth forecast that may not pan out — and if it doesn’t, inflation will be even lower. There is every likelihood that the MPC’s forecast for growth will be lower in their new inflation report to be published next week.