The Bank of England has signalled that British interest rates may not need to rise quite as high as markets currently expect in order to keep inflation on track to hit a 2% target.
In its quarterly inflation report, published a week after it raised borrowing costs to 5%, the bank said it saw inflation returning to target more quickly than envisaged in August.
Financial markets have been pricing in a strong chance of another quarter-point hike early next year.
Assuming interest rates held at 5%, the BoE's chart showed CPI marginally overshooting the target, suggesting it is leaving the door open for another hike if pay settlements pick up in response to the latest rise in retail price inflation.
The BoE also remained bullish on the growth outlook, suggesting the outlook was 'slightly stronger' than it had predicted in August. It sees UK growth running at around 3% for most of next year before slipping just below that mark in two years as government spending slows.
