THE BANK of England expects the UK to power its way back to rapid growth during the next two years, even as Mervyn King, the governor, couched the recovery in cautious terms, underlining the amount of slack remaining in the economy.

The bank’s new central forecast is for 2.1 per cent growth in 2010 and 4 per cent growth in 2011, much faster than either private sector economists or the UK government currently expects.

This is a big upward revision for 2010 and 2011 from the August forecast of 1.9 per cent and 3 per cent respectively.

The strong forecasts for growth come after the UK suffered its longest postwar recession, with the economy still contracting in the third quarter, lagging behind France, Germany and Japan.

However, contrary to the bank’s improved outlook, Mr King depicted the economy as beset by headwinds. “We have . . . only just started along the road to recovery,” he said.

The more upbeat view came as official figures showed the UK labour market appears to be stabilising earlier than expected.

Unemployment fell for the first time since the beginning of the recession by 0.1 percentage points to 7.8 per cent in the three months to September. – Copyright The Financial Times Limited 2009