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14 Feb, 2008

Leah Milner
Date: 13-Feb-2008

The Bank of England has hinted its scope for cutting interest rates could be limited due to forecasts that inflation will rise.
In its latest inflation report the BoE says the combination of slow growth and above-target inflation poses substantial challenges for policy.

It says that Consumer Price Index inflation was close to the 2% target in December, but it expects higher energy, food and import prices push inflation up sharply in the near term.

It then forecasts inflation will drop back to just over the 2% target in the medium term as the temporary boost from higher energy prices disappears and pressures moderate.

The BoE's central projection is for output growth to slow markedly this year and then gradually start to recover.

The report also says global financial markets are vulnerable to further shocks and in the UK new lending may remain restrained.

The BoE says market participants expect the base rate to fall to 4.5% this year.

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