Bank of England's Policy to Increase Inflation

Bank-of-EnglandA new policy, devised by the Bank of England, poses the risk of increasing inflation. A leading expert has warned that forward guidance could have inflation soar higher than the Bank's 2% target.

Prof. Michael Woodford of the University of Columbia told the BBC, "If it's too successful, maybe it then pushes up inflation more than you want, and that's obviously a concern in the UK as the Bank of England has been overshooting its inflation target as it is". Prof. Woodford is known as a one of the leading experts on forward guidance

The policy will have the Bank to vow to keep interest rates low for an extended period of time. The policy details are slated to be announced by new governor Mark Carney in August.

Prof. Woodford said that it means they are ready to fail in terms of boosting the real economy. They actually want the economy to grow, even if it slightly increases the inflation as a price.

The CPI inflation target of Bank of England is 2%. But it has been reported to have gone above the set target since December 2009. According the latest figure, the inflation rate was 2.9% for June.