Bank issues latest quarterly inflation report

The Bank of England’s latest quarterly inflation report, published today, has revealed a much better outlook for the UK economy than its previous report in August.

The Bank increased its forecast for economic growth over the next two years predicting that gross domestic product (GDP) should rise above 4% early 2011 before slowing to 3% by the end of 2012.

In its August report, the Bank said GDP would barely rise above the 3% mark over the next 3 years.

Last week, the Bank’s Monetary Policy Committee elected to keep the base rate at 0.5% in November, as widely expected.

The Bank also announced that it would inject a further £25 billion into the economy under its quantitative easing programme. The amount is in addition to the £175 billion of support already provided.

In its report, the Bank said its £200 billion quantitative easing programme should help restore confidence.

In the meantime, the Bank said the UK economy has “only just started” its recovery and indicated it would be late 2011 before the UK economy recovered to the pre-recession levels.

With regard to inflation, the Bank’s Governor, Mervyn King, warned it could “rise sharply over the next few months”.

According to Mr King, the rise in inflation would be as a result of the VAT rate, which is set to revert back to the 17.5% mark again in January 2010.

The latest figures from the Office for National Statistics shows that inflation currently stands at 1.1% - the lowest level since September 2004.

Following the publication of the report, the pound fell against both the euro and the dollar. Against the US currency, the pound was down 0.6% to $1.66450, while one pound was worth 1.10800 euros.

Meanwhile, further hopes for a recovery within the UK economy came today after it was revealed that UK unemployment fell to 2.46 million in the three months to September - below the 2.47 million recorded in the three months to August.

The unemployment rate remains at 7.8% and the increase of 30,000 without a job was the smallest in 18 months.

In related news, Chancellor Alistair Darling has today announced that the pre-Budget report will take place on Wednesday 9 December.

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