Recent interest rate cuts could offset the worst of the global slowdown and help the UK avoid recession, the Bank of England said today.
While predicting a fall in UK growth next year the Bank said the economy was on track to rebound in 2003 despite the "heightened uncertainty" following September 11th.
Mr Mervin King, one of the members of the Bank of England's Monetary Policy Committee, said: "Growth is likely to slow over the next few quarters. But a slowdown is not the same as falling output. The committee does not believe that a recession in the UK is the most likely outcome."
The Bank has slashed interest rates since September 11th to four per cent, their lowest level since January 1964, including a half point cut last week. The Bank said it hoped these would offset the deteriorating global conditions.
The Bank said however there were still considerable difficulties in making firm projections given the risks of a prolonged downturn in the international economy.
It added there were signs the UK labour market was turning as well as fears of a damaging drop in consumer spending over the coming months.
Thousands of jobs have been laid off by recession-hit manufacturers in the UK so far this year and the Bank said these would feed through to unemployment figures and firms were likely to hold back on recruitment plans.
While consumer spending had so far held up in face of the global slowdown, job cuts, stock market falls and lower confidence suggest it will begin to "decelerate", the Bank said.
Official figures yesterday showed interest rate cuts had taken headline inflation down to 1.6 per cent last month while the underlying rate remained unchanged at 2.3 per cent.
The Bank said it expected the underlying rate to drop to 2 per cent early next year before drifting back up towards the Chancellor's 2.5 per cent target.
PA