Inflation outlook grim, says Bank of England

The prospect of further cuts in UK interest rates appear to have lessened, as the Bank of England released a gloomy forecast for the UK economy.

Yesterday it was revealed that inflation rose to 3% in April: one percentage point higher than the government-set target of 2%, and a jump of half a percentage point on March's figure.

And in today's quarterly inflation report, the Bank warns that inflation could climb further to around 4%, while growth in the economy slows to just 1% by the end of this year.

Introducing the report, the Bank's governor Mervyn King said that "the near-term outlook for inflation has deteriorated markedly over the past three months".

"For the time being, at least, the 'nice' decade is behind us," he added. "The credit cycle has turned. Commodity prices are rising. We are travelling along a bumpy road as the economy rebalances."

Yesterday, the British Chambers of Commerce called for another cut in interest rates, with economic adviser David Kern arguing that "the immediate threats to growth remain more serious than the risks of higher inflation."