Government on track with inflation

The risk of inflation rising has eased in the past three months, the Bank of England said today.

The risk of inflation rising has eased in the past three months, the Bank of England said today.

In its latest quarterly inflation report, the Bank said the outlook for prices was "little softer" than in August.

But it warned that there was greater uncertainty now because of rising oil prices on the global economy.

Underlying inflation remains below the Government's 2.5% target throughout next year before rising to around target in 2002.

"Doubts about the speed of the slowdown in the world economy, the evolution of oil prices, the pace of deceleration in private sector demand and the likelihood of continued benign outcomes in the labour market have made the committee more uncertain about prospects than in August," the report said.

Overall, the report said that the outlook was for steady economic growth over the next two years, with inflation close to the target rate.

The continued rise in world oil prices - with futures up three to four dollars-a-barrel since August - was likely to have only a "modest" impact on inflation and the world economy, it said.

However the report warned that if there were further "sustained" increases in the price of oil, it would heighten the risks of a global economic downturn.

The report also suggested that, with pay pressures subdued despite falling unemployment, the economy may be able to sustain a lower level of unemployment without triggering inflation.