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Is the Bank of England about to spoil the economic party?

The Bank of England is this week expected to pour cold water on hopes that the UK economy is on the verge of a significant recovery. Despite politicians attempting to talk up the economy at any opportunity it seems the Bank of England is set to reduce growth forecasts of 2009 and 2010 and question the strength and vulnerability of the "ongoing economic recovery".

This could not have come at a worse time for the UK government with a general election pending next year and all hopes pinned on a strong economic recovery. The quantitative easing program has also been increased by £50 billion amid concerns that deflation could be an issue in the short to medium term, in a similar fashion to that seen in Japan in the 1980s. Whether investors and analysts take heed of the warnings to come from the Bank of England remains to be seen but there are alarm bells starting to ring in certain areas of the economy and the finance industry.

There are some analysts who believe this is payback time for the UK government effectively cutting the Bank of England adrift and releasing the likes of Mervyn King from the regulatory loop. In many ways the Bank of England attracts significantly more respect than any one UK government and any one UK political party.

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