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Bank to signal inflation pick-up Bank warns of flat growth ahead
(about 3 hours later)
The Bank of England is likely to provide evidence of tougher times ahead for the economy when it publishes its latest quarterly report on inflation. The Bank of England says it expects the UK economy will not grow at all over the next year or so.
The report comes after the UK's annual rate of inflation rose to 4.4% in July, its highest level since 1997. In the Bank's gloomiest assessment yet, governor Mervyn King said that he expected growth "to be flat" and did not rule out a recession.
Analysts said the Bank is likely to predict that inflation could touch 5% before falling back, leaving no scope for an early cut in interest rates. He warned inflation would peak at 5%, making it hard for the central bank to cut interest rates in the near future.
Jobs data, also due later, is expected to show a rise in those out of work. However, he said that the slowing economy would eventually curb inflationary pressures.
Vicky Redwood, an economist at Capital Economics, said it looked possible that inflation could reach 5% this year before easing. She said the Bank's Monetary Policy Committee could also cut its economic growth forecasts for next year. "I think with broadly flat output, it's bound to be the case that there is a possibility of a quarter or two of negative growth," Mr King said.
"While we are in no doubt that the committee will cut interest rates aggressively once inflation has shown signs of peaking it would be understandable if it did not want to signal that rate cuts are imminent just yet," she said. He added that consumer spending and house prices would weaken, particularly because of tighter credit conditions.