MNI BRIEF: Downside Risks To BOE Inflation Outlook From Energy

Energy prices again pose a downside risk to the Bank of England's inflation outlook. Its inflation forecasts are based on energy futures curves for the next 6 months and then a flat projection over the rest of the forecast period. However, they point to a sharp divergence in the outlook if energy costs follow the futures curve for the entire period.

In its central projection, the BOE sees CPI at 1.6% in three years using current market interest rates. In its alternative scenario, where energy prices follow current market energy price curves, CPI will fall back to target more quickly and be around 1.25% in 2025.