Britain to avoid double dip recession: BoE

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The Bank of England forecast on Wednesday that the British economy, which suffered a shock contraction in the final three months of last year, would likely avoid a double-dip recession.

The central bank, releasing its quarterly economic report, also predicted annual inflation would hold "well above" its target of 2.0 percent this year, and would fluctuate between 4.0 and 5.0 percent in the near term.

"Expansionary monetary policy, combined with further growth in global demand and the past depreciation of sterling, should ensure that the recovery in the United Kingdom is maintained," the BoE said in its report.

"But the continuing fiscal consolidation and squeeze on households' purchasing power are likely to act as a brake."

The bank also warned that the growth outlook was "weaker" than in the previous report in November, given the ongoing impact of state austerity measures and high commodity prices.

"The projection for four-quarter growth is weaker than in November for much of 2011, following the weak data around the turn of the year," the report said.

"The strength of the recovery is likely to be dampened by the fiscal consolidation and a continuing squeeze on households' purchasing power from the effects of higher commodity prices and a persistent impact of the recession on productivity and hence wages."

BoE governor Mervyn King, presenting the report at a London press conference, noted that "the recovery was unlikely to be smooth."

British gross domestic product (GDP) shrank by 0.5 percent in the three months to December, according to recent official data which blamed freezing wintry weather late last year.

"GDP was provisionally estimated to have fallen by 0.5 percent in 2010 Q4," the BoE report noted on Wednesday, saying that "without the disruption caused by heavy snow, output would have been broadly flat.

"Growth in 2011 Q1 is likely to be boosted as activity rebounds," it added.

The BoE's key task is to keep British annual inflation close to 2.0 percent.

However, official data showed on Tuesday that inflation surged to a two-year peak at 4.0 percent in January -- double the target level -- on the back of surging and oil prices and food bills.

Earlier this month, the bank held interest rates at a record low 0.50 percent -- where they have stood since March 2009 -- as it juggled the competing pressures of a fragile recovery and mounting inflation concerns.

© 2011 AFP

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