Interest rates set to stay at 0.5%
The Bank of England is set to keep interest rates at their record low of 0.5% this week after official figures revealed economic growth in the UK slowed between April and June.
Inflation also unexpectedly fell to 4.2% in June as retailers cut prices in response to the tightening squeeze on household incomes, relieving pressure on the Bank to hike rates.
A rise would help to bring down the consumer prices index (CPI) measure of inflation, which is still more than double the Bank's 2% target.
But figures revealed gross domestic product increased by 0.2% in the second quarter of the year, slowing from a 0.5% increase in the previous three months.
Despite inflation driving up the cost of food and fuel, squeezing household budgets, the Bank's Monetary Policy Committee (MPC) is expected to leave interest rates on hold for their 29th month in a row because of increasing fears over the strength of the UK's economic recovery.
Howard Archer, chief UK and European economist at IHS Global Insight, expects rates to increase from mid-2012 at a gradual pace.
Mr Archer said the MPC was likely to increase its £200 billion quantitative easing (QE) programme before it puts up rates in a bid to jumpstart the economy.
Mr Archer said: "If the Bank of England does act anytime soon, it seems more likely to be to relax monetary policy through reviving quantitative easing, which has been on hold since February 2010.
"However, the indications are that the majority of MPC members are currently wary about going back down the quantitative easing path given still significant inflation risks, so we believe that more QE is unlikely to occur unless the economy suffers extended major weakness."
In addition to the slowdown in GDP growth, there have been more worrying signs for the economy in recent months, following weak manufacturing data.