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Wednesday, 16 May, 2001, 11:56 GMT 12:56 UK
UK inflation to remain low into 2002
The Bank of England
Bank of England: Another rate cut in July?
UK inflation will continue at about 2% this year and is set to remain below the government's 2.5% target next year, the Bank of England has said.

In its quarterly inflation report, the bank said inflation, excluding the cost of mortgages, would remain subdued but economic growth was still at risk from a more prolonged slowdown in the United States.

Economists said the report indicated that the bank saw further scope for cuts in UK interest rates in the coming months.

"It suggests they are still in easing mode and should be seen as boosting the likelihood of another rate cut in July," said Jeremy Hawkins, chief economist at Bank of America.

Higher than the US

UK interest rates have already been cut 0.75% to 5.25% this year but remain higher than rates in the US - which on Tuesday sliced 0.5% off rates for the fifth time this year - and the eurozone.

Interest rates in the US now stand at 4%, while they are 4.5% in Europe.

The Bank of England on Wednesday downplayed prospects for a swift rebound in the US economy, saying: "Though policy relaxation is likely to foster recovery in US growth towards the end of the year, the risks there remain on the downside."

The bank's report was released on the same day official figures showed UK unemployment had dropped to a new 25-year low.

Fears of a slowdown

Meanwhiile, the Treasury has published its summary of independent forecasts which suggest most economists believe the UK economy is slowing down.

In May, the average of new forecasts for the UK economy suggested a growth rate of just 2.3% in 2001, with the average falling steadily over the past few months.

That is well below last year's growth rate of 3%.

But most of the forecasters suggest that the economy will grow slightly faster in 2002, with an average forecast of 2.6%.

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15 May 01 | Business
UK inflation remains steady
16 May 01 | Business
UK jobless figures stay below 1m
15 May 01 | Business
Fed cuts rates again
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