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Last Updated: Wednesday, 15 February 2006, 16:37 GMT
UK inflation 'to remain steady'
Bank of England governor Mervyn King
Mr King expects the economy to return to form soon
UK inflation is set to remain close to its target of 2% over the next two years, the Bank of England has said.

Analysts said the comments, made in the Bank's latest quarterly inflation report, dampened prospects of any interest rate moves in the short term.

UK CPI inflation was 1.9% in December, whereas high oil prices had pushed it to 2.5% in September.

The report also forecast growth would recover from its current weakness to "around its historical average".

"The picture of the UK economy painted by the latest official data is of a rather shallow slowdown followed by a return to growth of Gross Domestic Product close to its long-term average," said Bank of England governor Mervyn King.

But he warned that there were differences among the members of the rate-setting Monetary Policy Committee (MPC) about the "risks to the central views for growth and inflation - both on the upside and the downside".

Analysts suggested these differences could prompt a cut in rates later this year, but added the Bank was more likely to keep rates on hold for the near term.

"The MPC is happy to sit on its hands for an extended period if its central view plays out, but ready to cut if growth does not continue to hold in," said Malcolm Barr of JP Morgan.

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