The Bank of England sees inflation declining to 1% in two years

Wed, Nov 12 2008, 11:04 GMT

FXstreet.com (Barcelona) – The Bank of England notes the market deterioration of domestic and global activity in the last months and the instability in financial markets, adverting the possibility of UK economy to enter into recession in the second half of 2008, while they foresee inflation falling at a fast pace in the coming months.

Gross domestic product has been estimated to decline about 0.5% in the third quarter of the year, and grow at a 0.7% year on year pace, as business surveys and reports from Bank’s regional agents weakened considerably, furthermore, the Bank expects economy to tumble further, as tighter credit conditions have squeezed consumer spending. Residential investment has continued declining, and business investment has weakened considerably.

UK GDP, as a result, will not start to grow till the last half of 2009, according to the Bank’s estimations, to recover strongly during 2020, to reach levels above the historical average in 2011.

Bank Rates, in this context, are expected to ease somewhat further to levels around 2.75% in the first half of 2009 to pick up to levels around 4% again in 2010.

Inflation has dropped from 5.2% in September, due to lower commodity prices, the Bank expects Consumer prices to decline to a 1% year on year level in two years time, despite the unusual uncertainty surrounding assessments over inflation and economic growth.

Source: FXstreet.com