The Bank of England has forecast that the British economy is unlikely to slide into recession even though there is a strong chance of negative growth at the start of 2009.
The BoE, presenting its latest quarterly forecasts on economic growth and inflation, said economic activity was likely to be broadly flat over the next year.
But it said gross domestic product (GDP) growth would rebound quickly from the middle of next year.
GDP in Britain grew by 0.2% in the second quarter compared with the first three months of 2008, according to recent official data. This was the slowest pace of economic growth for more than three years. The technical definition of a recession is when an economy contracts for two or more quarters in a row.
The bank also forecast that annual inflation would fall below the bank's 2% target in two years if interest rates were held at the current 5% level.
The BoE's report showed the CPI rate spiking close to 5% before falling back dramatically as the effects of higher food and fuel prices subside.
Most analysts expect the BoE to hold off from cutting interest rates for the next few months while inflation - which hit a series-high of 4.4% in July - remains so far above target. But the latest forecasts showing inflation below 2% in two years are likely to boost expectations that a rate cut could come sooner than that.
'The housing market is weaker and credit supply conditions are tightened by more than was assumed in May,' the BoE said.
