The Riksbank's latest forecasts for the Swedish economy are remarkably similar to the Bank of England's projections for the UK in the February Inflation Report. Unlike the Bank, however, the Riksbank last week signalled that it expects to begin raising interest rates in the summer or early autumn.

Sweden, like the UK, targets 2% inflation. The consumer price index at fixed mortgage rates (CPIF) rose by 2.7% in December, well above both the target and the Riksbank's previous forecast. It expects a decline to 1.2% by January 2011, however, followed by a gradual rise back to 2% by late 2012. This assumes that the repo rate is hiked from its current level of 0.25% to 2.0% by August 2011.

The Bank of England releases its forecast numbers on Wednesday but the fan charts in the Inflation Report imply CPI inflation of more than 3% in the current quarter followed by a decline to about 1% in early 2011 and a rise back to 2% in late 2012 (mean projection). This is based on market expectations of an increase in Bank rate to 2.1% by the third quarter of 2011.

The similarity of the two forecasts is illustrated by the charts, taken from the Inflation Report and Riksbank Monetary Policy Report respectively.

Spare capacity is probably similar in the two economies. From a peak in the first quarter of 2008, GDP had fallen by 5.9% in Sweden and 6.0% in the UK (5.6% excluding oil and gas extraction) by the third quarter of last year. As in the UK, Swedish unemployment has risen by less than most forecasters, including the Riksbank, expected.

Both central banks project a solid economic recovery. The Riksbank forecasts GDP growth of 2.3% in 2010, 3.4% in 2011 and 3.5% in 2012. The Financial Times estimates that the Bank's mean projection is for increases of 1.3%, 3.0% and 2.9% respectively. While the UK numbers are lower, the OECD thinks that potential growth was 0.4-0.5% per annum slower in the UK than Sweden over the last five years.

The Bank's inflation forecast is probably optimistic relative to the Riksbank's, for three reasons: inflation is starting from a higher level, which is likely to influence expectations; sterling has been much weaker than the Swedish krona, suggesting continuing upward pressure on tradable goods prices; and the UK's much-worse public finances guarantee further large rises in indirect taxes.

According to the Riksbank:

The information received since December indicates a continued normalisation of the financial markets and a somewhat stronger development of the economy. All in all, this means that the risk of a major setback in the recovery of the economy has declined and that the upturn therefore rests on more solid ground. There may thus be a need to adjust monetary policy to more normal conditions somewhat sooner than was assumed in December. The current assessment of the Executive Board of the Riksbank is that the repo rate will be increased in the summer or early autumn.

Compare and contrast with the closing sentences of Bank of England Governor King's statement at last week's Inflation Report press conference:

Output has stabilised and confidence has recovered. The additional money created by the asset programme will continue to boost the economy for some time to come. But the nature of the headwinds means that the recovery is likely to be slow. And there is much uncertainty – about both the outlook for the world economy and the strength of domestic spending. Although the MPC last week announced a pause in its programme of asset purchases, it is far too soon to conclude that no more purchases will be needed. So the Committee will keep its options open, and further purchases will be made if they prove necessary to keep inflation on track to meet the target in the medium term.

The Bank of England's optimistic inflation forecast and its unwillingness to signal the possibility of future tightening may be further evidence of a shift to "inflation targeting lite", in which the formal requirement to hit the 2% target "at all times" is downplayed in favour of supporting growth and encouraging politicians to believe that necessary fiscal restriction will be rewarded by maintenance of super-low interest rates.