The Bank of England yesterday lowered its expectations for economic growth this year, but added activity was likely to pick up over the following two years.
Delivering the quarterly inflation report, Governor Mervyn King said the bank was cutting its forecast for this year from 2.5 per cent to about two per cent, before rising above three per cent in 2007 - a level of growth that may reduce the chances of further interest rate cuts following a quarter point reduction to 4.5 per cent last week.
The lower growth target had been widely predicted after figures showed the economy grew at its slowest rate for more than a decade.
Nevertheless, Mr King added that the recent slowdown had been "modest" by the standards of the past.
The bank also said sky-high oil prices would continue to push inflation higher.
It expected inflation to move above the Government's two per cent target in the near term, then ease before once again passing the Treasury's intended level at the end of the two-year forecast period.
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