The minutes of the last Bank of England (BoE) policy meeting which were released this morning showed that the central bank isn't sure which way inflation is going to head in the medium-term.

They cited inflation risks both to the upside and downside. Persistently high inflation may lead to increased inflation expectations becoming embedded among consumers which may make it more costly to bring back inflation to target levels. While there was also the risk that waning private sector demand and excess capacity may lead to a sharp fall in inflation below target levels. The minutes also showed that policy members stood ready to combat inflation in either direction with additional policy measures to stimulate the economy if the risks evolved. GBP/USD initially dipped following the release of the minutes, but had since pared the loss and traded 0.5% higher at $1.569 this morning. Sterling found some support after the Confederation of British Industry (CBI) raised its 2010 growth outlook for the UK. The CBI now expects growth to be 1.6% in 2010, up from 1.3% previously forecasted in June. However, they trimmed their 2011 forecast from 2.5% to 2% as they expect the introduction of the VAT and the reduction in public spending to temper growth. While the outlook for the UK may not look all that rosy, GBP/USD could gain further in the short-term after the Fed yesterday left the door open for further monetary easing which may weigh on the US dollar.