Bank in warning on threats to economy
The UK's economy will not grow as quickly as previously expected and faces serious threats from the debt storms lashing the eurozone, the Bank of England has warned.
GDP is set to grow by around 1.4% in 2011, the Bank said in its quarterly inflation report, down from its estimate of around 1.8% in May.
It is the second time the Bank has downgraded the UK's growth forecasts this year, having previously expected growth of about 2%.
And next year's growth will also be significantly slower than previously thought at about 2% - down from around 2.5%.
The UK's growth is likely to be "sluggish" but will gradually grow to stronger than normal by 2014.
But many economists said that even after today's downgrades, its forecasts were still too optimistic.
The UK's economy has failed to gather momentum as consumer spending is squeezed because wages are failing to keep pace with the rising cost of living.
And efforts to increase exports have also been hamstrung by the slowdown in the world economy.
Bank governor Sir Mervyn King said: "The outlook for growth in the world economy has deteriorated and, largely as a consequence, near-term growth prospects at home are somewhat weaker."
In addition, the debt crisis in the eurozone has the potential to impact significantly further on the UK economy.
He warned the global debt crisis, which has helped create turmoil in world stock markets in recent days, will take "a number of years" to be resolved.
He said: "The problems of indebtedness are large and not easy to tackle but we have to face up to it and find a way through it.
"2008 was not the end of the crisis, it was one stage of the crisis, and we are going through another stage now before, I hope, we come to an end of it."
The Bank warned that there is a "good chance" inflation will reach 5% in the coming months, driven by rising utility bills.
Vicky Redwood of Capital Economics said: "Even after the latest downgrades, the MPC's growth forecasts still look optimistic to us, particularly in the light of the further market volatility seen since the committee signed off the report last week."
The bank's downward forecast comes as a new survey showed an all-time high of shoppers who feel they have no spare cash.
A total of 32% of people felt they had no money left over as they are concerned over rising utility bills, the economy and increasing fuel prices, according to the Consumer Confidence Survey released today by the British Retail Consortium (BRC).
Shoppers are tightening their belts, with 71% changing their shopping habits and 65% switching to cheaper grocery brands to stay within their budgets.
The projected rate of growth for the UK's GDP, according to the Bank's quarterly inflation report