THE BANK of England revised down its forecasts yesterday for gross domestic product growth over the coming years, citing, among other factors, signs that the global recovery may be stalling and that the boost promised by higher exports will be limited.

Growth is likely to be 2.7 per cent in 2011, down from the May forecast of 3.4 per cent.

The bank also said that tighter-than-expected credit conditions were a factor.

In its quarterly Inflation Report, the bank revised its inflation outlook, saying that prices would rise more swiftly this year and next.

Inflation was expected to remain well above the bank’s 2 per cent medium-term target all through 2011 but would fall below that level by mid-2012.

In unveiling its outlook, Mervyn King, the central bank’s governor, made clear he believed that the economy would struggle to meet its challenges. “There are clearly risks,” he told a press briefing.

“Business and consumer sentiment have shown signs of softening, measures of financial fragility remain elevated and there is great uncertainty about the outlook for both the US and our most important trading partner, the euro area.” Mr King made clear that although there was discussion with the bank’s monetary policy committee on exactly how accommodating monetary policy should be, all members agreed that it needed to remain exactly that for some time.

Economists widely interpreted the briefing as a signal that the bank was more likely to take up further monetary easing if growth appeared to stall again.

“With the bank adopting a more nervous tone in this report, the risks have probably risen for a longer period of rates on hold,” said George Buckley, an economist at Deutsche Bank. Sterling immediately fell by 1 per cent against a basket of currencies and the UK’s benchmark 10-year gilt touched a 16-month low.

Stuart Green, an economist at HSBC, noted that some market participants had expected a much more hawkish stance against inflation, which had been persistently and markedly higher than the bank had forecast for more than a year.

“If they go back to quantitative easing, it would likely be triggered by global events,” Mr Green added. The lower growth forecasts come as global growth has shown signs of slowing and in the face of the problems in Europe. – (Copyright The Financial Times Limited 2010)