UK Economic Forecast 'To Be Slashed' as Global Crisis Raises Fears for Recovery

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THE Bank of England is expected to slash its UK economic forecasts today, amid fears that the recovery is in jeopardy.

The Bank's quarterly inflation report is expected to predict that GDP in 2011 will rise by significantly less than the 1.8% it estimated in May, while next year's figures may also be downgraded.

But its calculations will not take into account the recent stock market meltdown, which has seen the FTSE 100 Index lose nearly 16% of its value, or pounds 250bn, in the past two weeks. The mayhem in financial markets could further weaken the UK's economy by destroying consumer and business confidence, raising the risk of a global recession, its governor Sir Mervyn King is expected to caution.

The Bank's Monetary Policy Committee has recently warned that the eurozone crisis could hurt the UK by dampening demand for exports.

It was particularly concerned by uncertainty about how much banks have loaned to struggling eurozone countries, such as Spain and Italy.

The Bank is now expected to say that the worries over the global economy and the resulting stock market slump could further endanger the recovery.

Sir Mervyn will be quizzed about whether more quantitative easing is needed to boost the stuttering economy.

Victoria Cadman, an economist at Investec Securities, said: "The recent turbulence in financial markets across the globe, if it persists, is likely to weigh on consumer and business sentiment, slowing any recovery in demand and business investment and risking an even slower recovery. …