The Bank of England has downgraded its forecast for economic growth by 0.9% for next year.
The Bank now expects the economy to grow by 2.5% in 2011, down from its previous forecast of 3.4%.
Mervyn King, the governor of the Bank of England, has warned that the UK economy faces a “choppy recovery” over the next two years.
King says that a lack of bank lending will limit economic growth.
The Bank’s Quarterly Inflation Report is predicting that inflation will rmain ahead of its 2% target next year but should be back on track in 2012.
King says: “I can assure you the Monetary Policy Committe is very concerned about what’s been happening to inflation. I do think that we have seen a sequence of shocks, price level shocks, which have inevitably raised inflation. We have also seen in the past three years two episodes now in which inflation did go up quite significantly and then came down quite sharply.
“And I think our judgement is that next year we will see a repeat of that. But there is great uncertainty about that, and the Committee will judge it month by month.”