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| Version 1 | Version 2 |
|---|---|
| Bank warns of flat growth ahead | Bank warns of flat growth ahead |
| (19 minutes later) | |
| The Bank of England says it expects the UK economy will not grow at all over the next year or so. | The Bank of England says it expects the UK economy will not grow at all over the next year or so. |
| 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. | 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. |
| He warned inflation would peak at 5%, making it hard for the central bank to cut interest rates in the near future. | He warned inflation would peak at 5%, making it hard for the central bank to cut interest rates in the near future. |
| However, he said that the slowing economy would eventually curb inflationary pressures. | However, he said that the slowing economy would eventually curb inflationary pressures. |
| "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. | "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. |
| In a technical definition of a recession, the economy contracts for two consecutive quarters. | |
| The economic picture has worsened since the Bank's last inflation report in May, which forecast growth to fall to around the 1% mark at the end of this year. | |
| And it is dramatically worse than the government's official forecast of growth in 2009 of 2.25% to 2.75%. | |
| Mr King added that consumer spending and house prices would weaken, particularly because of tighter credit conditions that were expected to continue. | |
| 'Painful' | |
| Mr King said that he expected the rise in inflation would be temporary but the UK economy would go through a "difficult and painful adjustment" until the rate fell back toward the government's target of 2% in two years. | |
| The UK's annual rate of inflation rose to 4.4% in July, its highest level since records began in 1997. | |
| Economists said the report indicated that interest rates were likely to remain unchanged for the next few months to bring inflation control. | |
| Some said the governor's lower growth forecasts raised expectations of an interest rate cut at some stage. | |
| "The Bank of England's August Inflation Report will be seen as rather more dovish than might have been expected given the recent dreadful news on inflation," said Jonathan Loynes, chief European economist at Capital Economics. | |
| "Interest rates will eventually fall very sharply once inflation pressures finally recede." |