Bank set to cut growth forecasts

Bank of EnglandThe Bank of England is expected to slash forecasts for growth and inflation as mounting evidence points towards the UK economy heading into reverse.
The bank's Monetary Policy Committee (MPC) will unveil its quarterly inflation report on Wednesday morning and give a clearer insight into whether or not the UK is facing a double-dip recession.

Weak manufacturing, trade and services data has blackened the economic outlook while the problems in the eurozone have taken a dramatic turn for the worse in recent weeks.

The bank said the eurozone debt crisis was a key threat to the UK when it unleashed an additional £75 billion in emergency support in October in a clear sign the recovery was heading towards the rocks.

In its last quarterly report in August, it forecast gross domestic product (GDP) to grow by around 1.5% this year and 2.2% in 2012. The report said inflation would fall back to around 1.7% in mid-2013.

Alan Clarke, UK economist at Scotia Capital, said the bank is likely to revise its growth forecasts sharply lower - but will remain slightly more optimistic than the City's consensus 0.9% growth for 2011 and 1.3% for next year.

He said: "The bank will probably blame the downgrading of its growth outlook on the deterioration in the international economy - not least the eurozone - and its impact on financial markets."

The weaker growth outlook is likely to push down the inflation projection - but this will be slightly offset by the impact of the second round of quantitative easing (QE).

Inflation has already appeared to have passed its peak after October figures released on Tuesday showed the rate slowing to 5% from a three-year high of 5.2% in September.

Most economists expect the MPC to loosen policy further with additional QE in the first and second quarter of next year, with some forecasting the level of asset purchases to increase from £275 billion to £400 billion.

© 2011 Press Association
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