Bank of England slashes medium-term growth outlook

The Bank of England has sharply cut its forecast for medium-term growth in Britain's economy due to worries that factors hurting growth since the financial crisis may be more long-lasting than first thought.

In its quarterly Inflation Report, the Bank said that growth in two years time was likely to be around 2 per cent a year, down sharply from the forecast of 2.67 per cent just three months ago.

This marks a break with previous Bank forecasts, which have usually shown strong rebounds in growth, even after short-term weakness.

"GDP growth in the second half of the forecast period is more likely to be below than above its historical average rate. That outlook is weaker than in the May report, reflecting the possibility that the factors contributing to the weakness of growth since the financial crisis may persist," the report said.

Britain's economy entered its second recession in four years at the end of 2011, as the Eurozone debt crisis and government austerity measures increasingly weighed on the economy.

Official data last month showed that output slumped 0.7 per cent in the second quarter of 2012, as unusually wet weather and an extra public holiday worsened these underlying problems.

To mitigate this slowdown, the Bank restarted its programme of asset purchases in July, committing to buy a further £50bn of British government bonds over the following four months, taking the total to £375bn.

The Bank and the government have also launched a joint scheme to give banks cheap financing if they lend to home-buyers and businesses, and also to ensure banks have access to emergency funds if liquidity dries up in a crisis.