Bank to slash growth forecasts

By JANE PADGHAM
Updated:

 

THE Bank of England was widely expected to slash its growth forecasts for Britain's economy today in the wake of last week's shock cut in interest rates. The gloomier prognosis will be contained in the Bank's eagerly-awaited quarterly Inflation Report which sets out its views on the economy over the next two years and provides a clue to the outlook for monetary policy.

In its last report in November, the Bank predicted the economy would expand by around 3% this year, a forecast that now looks hopelessly optimistic. The stock market slump and deterioration in the global growth outlook are likely to have forced the Bank to lower its forecast to nearer the 2.2% consensus pencilled in by the City's economists.

'Such revisions to the Bank's forecasts are likely to have played a key role in the decision by the monetary policy committee to cut rates,' said George Buckley at Deutsche Bank. The MPC trimmed the cost of borrowing from 4% to 3.75%.

Any cut would also add to the pressure on Chancellor Gordon Brown, whose forecast of 2.5%-3% is looking increasingly out of reach.

The Bank's forecast for inflation is likely to be similar to November's. That showed inflation rising above the 2.5% target for most of this year, falling below it for most of 2004 before hitting the inflation bull's-eye in two years' time.

As well as the Bank's key growth and inflation projections, economists will also be poring over any comments it makes on house prices, consumer spending and equity markets.

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