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Bank of England talking up UK economy

The Bank of England has today released a report suggesting that weakness in sterling and the bank's £200 billion quantitative easing program are starting to have an impact on the UK economy. This is a very different opinion to that which the bank portrayed just a few weeks ago when many believed that Mervyn King was trying to talk down the UK economy, amid concerns that 2010 could be a very difficult year as well. So what is happening?

The Bank of England believes that UK economic growth should rise to around 4% a year by 2011 and then fall to around 3% from 2012 onwards. This is a startling difference to the recent forecast of 3% growth over the next three years as opposed to 4% next year and 3% annually thereafter. It would appear that a mixture of increased economic activity, interest from overseas investors as well as a surprising reduction in the growth of unemployment has given the Bank of England food for thought.

It will be interesting to see if analysts adjust their own forecasts after the surprising revelation today or whether they hang back for the time being to let the situation settle and hopefully become clearer in the short term.

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