Bank warning as growth forecast cut
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 Bank added.
The UK's growth is likely to be "sluggish" but will gradually grow to stronger than normal by 2014, it added. But many economists said that even after the 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 its efforts to increase its 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.
Sir Mervyn added: "There are a number of headwinds to world and domestic growth over the forecast period, not least the private and public debt overhang. And these headwinds are becoming stronger by the day."
And 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.