The Bank of England has said Britain, which emerged from recession late last year, faces the prospect of a 'gradual' economic recovery this year.
In its latest quarterly assessment, the BoE predicted that annual growth would probably be about 3.5% by the end of 2010. That was lower than the 4% expansion which was forecast in November.
The bank expected annual British inflation to peak at about 3.5% this year, before falling back below its 2% target level.
BoE governor Mervyn King, presenting the report, said that the economy would continue to 'bump along the bottom' but he hoped for a 'gradual recovery' in activity.
In order to revive the economy, the Bank of England cut interest rates to a record low in March, and has pumped out £200 billion under the radical policy of quantitative easing (QE).
'The outlook for growth is underpinned by the considerable stimulus from the easing in monetary policy, and supported by global growth and the past depreciation of sterling,' the report noted. But it added that the outlook remained highly uncertain, with tight credit conditions and the need to strengthen public and private finances affecting spending.
Earlier this month, the BoE froze its radical policy of pumping massive amounts of new money into the economy but did not rule out further moves. Under the radical QE policy, the central bank created money by purchasing bonds from commercial institutions.
UK industry rise stronger than expected
The report came as official figures show that British manufacturing output rose by more than expected in December.
The Office for National Statistics said manufacturing grew by 0.9% in December after an upwardly revised 0.2% rise in November.
The broader measure of industrial production also rose by slightly more than expected, growing by 0.5% on the month, its fastest pace since September 2009, despite being held back by a 5.5% drop in oil and gas production.
Year-on-year, manufacturing was down 1.9% in December and industrial production was 3.6% lower.
