UK in for slow recovery warns BoE

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In its quarterly Inflation Report, the Bank of England said economic recovery in the UK is likely to be slow.

However, the Bank said the rate of decline in Gross Domestic Product (GDP) will slow this year.

The Bank expects GDP to fall at an annual rate of 4.5% at the start of the April to June period, with growth forecasted to resume at the start of 2010. It is then expected that the economy will show a growth rate of around 2.5% in two years time.

In comparison, the Government predicted a decline in GDP of 3.5% for 2009.

In its report, the Bank said: “The prospects for economic growth remain unusually uncertain, reflecting the exceptional economic and financial factors affecting the outlook.”

Prior to the release of the report, sterling fell to $1.5180 against the US dollar. Yesterday, sterling reached a four-month high after several economic reports provided green shoots of recovery.

The Bank of Englanda��s Governor, Mervyn King, said: a�?There are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained. But in the light of the state of balance sheets particularly in the financial sector, the committee judges that the risks are weighted towards a relatively slow and protracted recovery.”

In a bid to stimulate the economy and aid recovery, the Bank of England has reduced interest rates to an historic low of 0.5% and has pressed ahead with quantitative easing (also known as printing money) – a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.

The Banka��s report hinted that interest rates will remain at their current low a�?well into 2010.a�?

Finally, consumer price inflation (CPI) is expected to fall well under the Bank’s 2% target this year. While the level is not expected to enter negative territory, it will be close to the zero mark, said the Bank.

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