The Bank of England yesterday downgraded its own forecasts for UK economic growth in 2013 to around 1%.
The UK's central bank also admitted that it expected inflation to fall back to the government’s 2% target in the second half of next year, later than previously thought.
In its latest inflation report the bank said underlying growth in the UK economy was “likely to remain sluggish in the near term”.
However it said that further out growth was expected to pick up – albeit “gently” – as some of the headwinds that had been holding back demand in recent years eased.
At a press conference yesterday Bank of England governor Mervyn King outlined that while output grew strongly in the third quarter this was not a reliable guide to the future.
“Just as growth in the second quarter was depressed by one-off factors and gave a misleadingly weak picture of the economy, so growth in the third has been boosted by one-off factors and gives an overly optimistic impression of the underlying trend," he said.
The bank said the future path of GDP would depend “critically on developments in the global environment, with strains in the euro area posing the greatest threat to a sustained recovery”.
GDP is estimated to have risen 1% in the third quarter, but this strength was “exaggerated by temporary factors”, and that headline growth in the fourth quarter “is consequently likely to fall back sharply”.