The Bank of England said on Thursday it has kept its main interest rate at a record-low 0.1 per cent, but warned that inflation was set to temporarily breach 3.0 per cent.

“The... central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back,” the BoE said in a statement after also holding its stimulus.

Inflation was meanwhile set to move higher above the British central bank’s 2.0 per cent official target, amid intensifying global concerns over an inflationary spike as economies reopen. 

“Inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3.0 per cent for a temporary period,” the BoE warned in minutes from its latest gathering.

The world’s central banks are grappling with fears of a inflationary spike and the health of post-COVID economic recovery. Both the US Federal Reserve and European Central Bank kept their own ultra-low rates and economic support measures intact in recent weeks, insisting high inflation is a temporary side-effect of the global rebound.

The world’s central banks are grappling with fears of a inflationary spike and the health of post-COVID economic recovery

UK inflation in May hit 2.1 per cent – the highest level since before the pandemic – with clothing, fuel and oil prices rebounding as the economy gradually reopens.

The BoE’s monetary policy committee remains keen not to snub out any nascent economic recovery by raising rates too soon.