The Bank Of England is betting the farm that by putting the UK’s economy on stimulants, it will recapture all the lost output during the recession, it will be able to time the stimulus exit perfectly and avoid hyperinflation. In the process it will create a recovery in half the time of previous recessions.

Or as the Bank put it, output is projected to grow by 2.1 per cent next year and by four per cent in 2011, inflation is likely to rise above the two per cent target in the short-term due to rising energy prices and the reversal of the VAT reduction. And, at the same time inflation will be beneath target in two years’ time.

Cutting through the predictions, Citigroup economist Michael Saunders said:

“Policy has been set to produce a boom to close the output gap in the next few years.”

Sounds pretty sweet but bear this in mind:

“These are the strongest growth forecasts the MPC has ever published and far above consensus,” according to Saunders.

So King is gambling in a high stakes game but he doesn’t have a lot of choice and it sounds a lot better than, “Basically guys, I think what we need is another bubble, a big inflationary one. Problem solved.”

Or as Zerohedge puts it: Bank Of England Preparing To Blow Bubble Of Unprecedented Proportions

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