The Bank of England's inflation forecast may already be looking stale

[LONDON] Just two weeks old, the Bank of England's latest inflation forecasts are already at risk of looking a bit stale.

While the central bank raised its predictions for price growth after Britain's vote to quit the European Union sparked a drop in the pound, officials still see a shallower path than economists.

The difference is stark, with some forecasters predicting the headline rate may accelerate above 3 per cent by late next year. The BOE only sees inflation exceeding its 2 per cent target in the first quarter of 2018 and reaching just 2.4 per cent in three years.

It's only one month, but factory-gate data on Tuesday provided an early indication of how Brexit is set to affect prices. And with a whopping 4.3 per cent annual jump in July - the fastest since 2013 - that suggests the only way is up - and fast.

"There is the potential for the impact of sterling to pass through relatively quickly," said James Knightley, a senior economist at ING Bank NV in London.

"It depends on how weak the economy becomes and how aggressive discounting gets. There are lots of different moving parts. That explains the differences in the forecasts and that's why it's so uncertain."

Even if the initial indications and the economists' forecasts do prove correct, it's unlikely to provoke a change of tack by the Monetary Policy Committee. In the August Inflation Report, BOE Governor Mark Carney and fellow officials said they'd look through any currency-driven inflation spike and allow longer than usual to get price growth to target.

They also said action to counter the pound's impact would only hurt output and push up unemployment.

As Mr Knightley says: "The BOE's biggest priority is growth, they can't do anything about inflation so they will continue to look through it and offset the Brexit negatives. Inflation is secondary."

So it seems like that 2 per cent inflation target is slipping down the list of priorities for now at least.

BLOOMBERG