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BoE cuts growth outlook
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February 10, 1999: 8:27 a.m. ET
Bank of England sees GDP growth slowing to 0.5-1% this year; inflation on target
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LONDON (CNNfn) - The Bank of England on Wednesday trimmed its outlook for the British economy this year, saying it expects the rate of GDP growth to slow to between 0.5 and 1 percent this year before recovering by the middle of 2000.
The Bank also said it expects close to zero growth in the first half of this year.
The scaled-back projection punctuated the Bank's quarterly inflation report, released just five days after it surprised the market by cutting its lending rate by half a percentage point to 5.5 percent. At the time the bank said it was acting on evidence that inflationary pressures had eased.
The bank also said in Wednesday's report, "the most likely path" is for inflation to stay close to its 2.5 percent target over the next two years.
In a statement accompanying last week's rate cut - the fifth since last October, when rates stood at 7.5 percent - the bank's Monetary Policy Committee said, "Further reduction in interest rates was necessary to keep inflation on a path consistent with the target of 2.5 percent."
"Indeed," the report said, "some Committee members took the view that the inflation profile should be about 0.2 percentage points lower because of somewhat stronger productivity growth, or weaker world prices, than assumed in the projection."
Bronwyn Curtis, the chief economist at Nomura Securities in London said the report underscored expectations of further rate cuts in the near future.
Nomura Securities is forecasting a further 0.5 percent cut in the next few months, and a further reduction by this summer which could bring rates down to 4.5 percent.
"A lot depends on how the numbers develop here," Curtis said, adding at another point, "It may be that we get a rebound" in the next three months in consumer or business confidence.
In early November, British Chancellor of the Exchequer Gordon Brown. cut his forecast for economic growth in Britain in 1999 to 1-1.5 percent.
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Bank of England
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