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February 11, 2010

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BOE cuts forecast for growth in GDP

THE Bank of England yesterday cut its forecast for economic growth and warned inflation is likely to slump in coming months, a downbeat assessment of Britain's recovery from its worst recession in decades.

Governor Mervyn King left the door wide open for the central bank's asset purchasing program to boost money supply, saying that "it's far too soon to conclude that no more purchases will be needed."

The bank's Monetary Policy Committee froze its 200-billion-pound (US$310 billion) quantitative easing program earlier this month, but King said the committee "would keep its options open" as the British economy continued "to bump along the bottom."

"Further purchases will be made if it's necessary to keep inflation on track to meet the target in the medium term," King told reporters after the BOE released its quarterly Inflation Report.

The report admitted that Britain's exit from recession at the end of last year was weaker than expected and forecast a very slow recovery, with output taking until around mid-2011 to return to pre-crisis levels. Gross domestic product growth was pegged at about 3.5 percent in two years.

The government has forecast growth this year of 1 to 1.5 percent and further growth of 3.5 percent in each of 2011 and 2012.

Britain officially ended a deep recession by recording a 0.1 percent rise in gross domestic product in the fourth quarter of 2009. The weak growth rate supports the central bank's bleak assessment, although some upbeat data on industrial production, also released yesterday, suggests the early recovery might have been somewhat stronger.

The Office for National Statistics said the index of manufacturing was up 0.8 percent compared with the third quarter.

Jonathan Loynes, economist of Capital Economics, said that hinted the fourth quarter GDP figure might be shifted upward in two planned revisions, calculated as more data is collated.

King said there were signs that "a gradual recovery in output may now be in prospect," but warned that the outlook was highly uncertain and appeared critical of positivity at a meeting of Group of Seven finance officials in Iqaluit, Canada, over the weekend.


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