The Bank of England expects British inflation to remain under control, soothing worries that interest rates may have to rise soon to keep a lid on price rises.
The Bank's Quarterly Inflation Report forecasts that the underlying rate of inflation will run at around 2% this year and then rise close to its government-set 2.5% target.
The report follows surprise figures released yesterday which showed a surge in inflation to 2.6% from 1.9% in December.
UK interest rates currently stand at a 38-year low of 4%, but financial markets think they will rise to around 5.25% by the end of this year as economic growth starts to recover from last year's global slowdown.
Britain's economic growth rate, which slowed to just under 2% in the final quarter of last year, is expected to slow further in the first quarter of this year, before recovering to around its 2.5% trend level over the next two years.
