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Bank of England lowers growth forecast

JANE WARDELL The Associated Press / Sunday, August 08, 2010

The Bank of England cut its economic growth forecast for next year and warned that Britain faces a "hesitant recovery" due to the increasing uncertainty that offers the panorama of the United States and the eurozone.

The pessimistic assessment issued Wednesday by the Bank of England echoed the warnings of those made the previous day by U.S. Federal Reserve that the economic recovery has slowed, raising fears of a possible double recession.

"It will take many years before the balance sheets of banks and their fiscal positions to return to anything remotely resembling normal," said Governor Mervyn King, after reporting the latest quarterly report of the Bank of England.

The central bank believes the gross domestic product will grow by 3% per year - predicted in May after an expansion of 3.4% - and predicted that inflation will remain above 2% until the end of 2011.

But he added that inflation is likely to fall to 1.5% in 2012 and even if the bank raises interest rates to record levels bearish.

The change reflects a weakening of consumer confidence, the continued tightening of credit and reducing public expenditure.

The British have elected a conservative government since the last quarterly report of the bank and the highest priority of the ruling coalition is to reduce the huge budget deficit through spending restraint. And raise the value added tax (VAT) from 18% to 20% at the beginning of the year.

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