Bank will tolerate inflation to aid growth The Bank of England said on Wednesday it was willing to tolerate persistently high inflation in a bid to boost the recovery. Marking its inflation forecasts sharply higher at the same time as becoming a little more pessimistic about growth, the bank has pre-empted the arrival of Mark Carney as governor, signalling policy will remain ultra-loose despite the overshoot in inflation. Last week, the governor designate from the Bank of Canada who takes over at the BoE in July, said he favoured "flexible inflation targeting" which allowed greater time for inflation to fall back to the 2 per cent target at times of economic weakness. Following this script, the bank's February inflation report, said that its Monetary Policy Committee agreed that a persistent overshoot of inflation, likely to be for three years, was acceptable. "As long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation," the MPC said. Attempting to bring inflation back to the target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term. Blaming student tuition fees, rising energy prices and the recent fall in sterling, which raises import prices, the MPC now expect inflation to rise from the 2.7 per cent level of January to above 3 per cent for the remainder of this year. They also think there is a 50-50 chance of inflation still being 2.3 per cent in two years" time at the start of 2015. The central projection has inflation falling back to the 2 per cent target only by the start of 2016. The BoE has become a little more pessimistic about the recovery, marking down the growth forecast this year again as the MPC believe the chance of a rapid recovery has become ever less likely. It now believes that the economy is most likely to grow 1.7 per cent in the year to the first quarter of 2014, compared with a prediction of close to 2 per cent in the last inflation report three months ago. For 2015, the bank has conversely become a touch more optimistic, now thinking the chances of a terrible prolonged stagnation have receded a little. "International policy actions have reduced the perceived likelihood of disorderly out-turns in the near term, and financial market sentiment has improved," the report states. There were no signs that the MPC was minded to increase the stock of quantitative easing printing money to pump into the economy through the purchase of government bonds - even with the persistently weak recovery and its greater tolerance of inflation.