The Bank of England has turned much more gloomy in its latest forecast for the UK economy - in a clear sign that damage from the US sub-prime crisis will not be contained just to North America.
In its first report since the August credit crunch, the Bank says it expects a sharp slowdown in UK domestic growth in the next year - and higher inflation as well.
It hopes that further rate cuts, and a fall in the value of the pound, which could boost exports, may bring UK growth back up to its long-run average by 2009.
But it is worried about maintaining its credibility as an inflation-fighter, with inflation expectations not changing despite higher price growth expected over the next year.
Mervyn King, the Bank's governor, warned that there was a high degree of uncertainty in their forecast this time, and that most of the risks to the economy were that things might get worse.
http://news.bbc.co.uk/1/hi/business/7094262.stm |
