The Bank of England today slashed forecasts for how much its expects the economy will grow this year to 2.5 per cent, down from 2.9 per cent.
Threadneedle Street also said it expects interest rates to remain close to historical lows for the foreseeable future, before rising some time in the second quarter of 2016.
Sterling fell 0.1 per cent against the dollar on the news, to 1.5656, reversing earlier gains after encouraging unemployment data.
"Despite the weakness in [the first quarter of] 2015, the outlook for growth remains solid," the report said.
This comes after the UK economy slowed from 0.6 per cent to 0.3 per cent in the first quarter of 2015, following a slew of disappointing economic data.
Nevertheless, manufacturing data released yesterday boosted hopes the final figure could be revised up, while data released this morning showed wages grew 2.2 per cent in March.
Governor Mark Carney said the most significant development was in the Eurozone - which is shaking off a period of stagnation - thanks to an unprecedented stimulus package, which has benefited the UK.
On inflation he said he expects it to remain remain close to zero before rising notably towards the end of this year - however, he stressed the period of low inflation that the UK is currently experiencing "should not be mistaken for widespread and persistent deflation".
Consumer price inflation had stayed at zero in March due to falls in food, energy and other import prices. This means it's at the lowest level since current records began in 1989.
"Inflation is likely to rise notably around the turn of the year as those factors begin to drop out," the report said.
"Inflation is then projected to rise further as wage and unit labour cost growth picks up and the effect of sterling's appreciation dissipates."