British economic growth will remain subdued for the rest of this year before recovering modestly in 2002 so long as the world economy picks up, the Bank of England said today.
In its quarterly Inflation Report, the bank said the outlook for growth had deteriorated since its May report and was a key reason behind last week's surprise quarter-point interest rate cut.
But the bank warned that "the possibility that the slowdown in the international economy may be deeper or more prolonged remains a downside risk".
Tame economic growth is set to keep inflation firmly under control, with the rate excluding the cost of home loans slipping to 2.0 per cent early next year, from 2.4 per cent at present. Inflation is then projected to edge slowly towards the government-set 2.5 per cent target.
Nevertheless, the bank remains concerned over Britain’s two-speed economy where overseas demand is weak and consumer spending strong, and the risk that sterling could yet fall sharply on the foreign exchange markets.
On the world economy, the bank said it saw euro area growth remaining sluggish in the near future before recovering next year while the US should enjoy a gentle pick-up in growth towards the end of 2001.