Bank forecasts show downturn depth
The Bank of England is set to underline the difficult road to recovery for the UK economy with its latest forecasts on growth and inflation.
Its quarterly figures are likely to downgrade previous estimates to show an even deeper recession than feared three months ago, explaining last week's surprise decision to pump an extra £50 billion into the economy.
Since the Bank's February report, the Monetary Policy Committee has cut interest rates to an all-time low of 0.5% and embarked on a historic quantitative easing (QE) strategy to boost the money supply.
The QE programme - effectively printing money - has been lifted to £125 billion after just two months - close to the £150 billion initial limit set by Chancellor Alistair Darling.
But this boost - as well as the weakness of the pound - could also prompt the Bank to shift up inflation forecasts closer to its 2% target as fears of a prolonged bout of deflation ease.
The Bank warned last week that the world "remains in deep recession" and the global financial system is still "fragile" despite interventions.
The timing of the change to QE caused some analysts to fear the Bank had been spooked by last month's shock figures showing a 1.9% first quarter dive in GDP.
The Bank's growth forecasts will be scrutinised for differences from predictions made in Mr Darling's Budget. He forecast a 3.5% decline this year but his predictions for 1.25% growth in 2010 and 3.5% in 2011 have been labelled optimistic by many critics.
The UK also entered its first period of deflation in almost 50 years in March, as the Retail Prices Index measure of inflation fell to minus 0.4%.
The Consumer Prices Index - the Bank's benchmark which does not include mortgage interest payments - remained above the 2% target at 2.9% in March although it is expected to fall back in coming months.
