The Bank of England has forecast that British inflation will continue to hold above a 2% government target in the near term.
The prediction, in the bank's quarterly inflation report, came one day after official figures showed the first monthly drop in inflation for a year to 2.3% in October.
The central bank added that the risks to economic growth and inflation were 'broadly balanced'. Sterling fell sharply in reaction to the report.
Speaking at a press conference, BoE governor Mervyn King repeated that the risks were 'evenly balanced, although the degree of uncertainty is larger than usual'. The BoE also said the near-term outlook for economic growth was a little weaker than in it was in August, though it expected it to slowly gain momentum as domestic spending recovered.
Earlier this month, the BoE left its key interest rate steady at 4.5% for the third month in a row, opting against a second cut since August.
