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Bank of England cautious on UK economy

The Bank of England has revised various forecasts regarding the UK economy amid concerns that the exit from recession will be slower and longer than expected. While the Bank of England last week suspended the quantitative easing program, the bank's governor Mervyn King has today suggested that the program may return and it is too soon to end the program completely. So where does this leave the UK economy?

On the plus side the Bank of England believes that the inflation rate in the UK will fall below the 2% target and indeed should settle at around 1.2% for the next two years. This is welcome news as UK inflation has spiked higher recently with concerns that UK base rates will have to rise in the short to medium term to combat this. However it is the reduction in growth forecast for the UK economy which is most alarming with the Bank of England now settling for a 3.2% increase in GDP by 2011 against a 4% forecast released in November 2009.

There is also concern for consumer spending with many families still needing to rein in their spending to suit the new economic climate. However, it is the significant reduction in forecast growth in the UK economy which is most alarming.

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