Market Comment

The difficulties households and businesses face in accessing credit is likely to continue for some time until the banking system has reduced its leverage 'from extraordinarily high levels'. This means that spending will be restrained for many months, particularly as households look to build their savings and reduce debt, rather than splurge on the high street.
 
The report notes that inflation has been unusually volatile in recent months - now at 1.1 per cent, down from 5.2 per cent only a year ago. The Bank believes this volatility is likely to continue, with inflation set to rise sharply over the next few months above its 2 per cent target, on account of higher petrol price inflation and the reversal of the reduction in VAT, before coming back down to its target.
 
The Bank concludes that the UK has come a long way since last November because of its programme of asset purchases, which the Committee extended last week. However, the UK has only just started along the road to recovery and the adjustment to balance sheets has much further to run.