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Wednesday, the Bank of England lowered U.K.'s economic outlook and forecast inflation to exceed 3% in January. In its latest quarterly Inflation Report, the central bank said the British economic growth is set to reach around 3.2% in the second quarter of next year, smaller than the previous estimate of 4%.
The BoE said outlook for inflation is somewhat higher in the near term than in the November Report. According to BoE, inflation will peak at around 3.3% before slowing to 0.9%. The prospects for inflation remain unusually uncertain and there are significant risks to the inflation outlook in each direction, added BoE.
The Inflation Report is produced quarterly by Bank staff under the guidance of the members of the Monetary Policy Committee.
The Inflation Report looks distinctly dovish and will raise questions over why the MPC did not extend its quantitative easing programme further last week, Capital Economics Chief European Economist Jonathan Loynes said. "The clear message is that further policy support may yet be needed," the economist noted. "Any tightening of monetary policy - conventional or unconventional - is a long way off."
"This is a far more cautious assessment of the economy from the Bank of England than their recent trend, embedding their greater uncertainty," ING Bank economist Rob Carnell commented. A lot depends on what the government's fiscal stance will be after the forthcoming election, the economist said. "A tighter fiscal stance than implied by the pre-budget report might well see the Bank of England keeping rates on hold for far longer than markets currently expect, which should keep sterling under even more downward pressure."
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