May 11, 2006	Thursday	Rabi-us-Sani 12, 1427

LONDON, May 10: The Bank of England forecast on Wednesday that British economic growth would remain near its long-term trend rate of 2.5 per cent over the next two years, diminishing expectations of interest rate movement any time soon, analysts said.

The forecast in the central bank’s quarterly inflation report, published on Wednesday, was slightly lower than its previous February forecast of above-trend growth in 2006 and 2007.

Following a soft patch at the start of 2005, output growth has recovered to around its long-term average, the BoE said.

The central bank also predicted that soaring oil prices would help push 12-month inflation above the government-set 2.0-per cent target in the near-term, before dropping back to around target. That compared with February’s forecast of inflation holding close to 2.0-per cent over the next two years.

The latest increases in energy prices are likely to push inflation back above the target in the short term, the report said.

British 12-month inflation had posted a surprise drop to 1.8 per cent last March from 2.0 per cent in February.

Analysts said that any prospect of a move on interest rates soon appeared to have been dashed.

Overall, this report suggests that rates may stay on hold for a while longer: rate cuts are clearly off the agenda and rate hikes do not appear like an imminent prospect either, said economist Audrey Childe-Freeman at the Canadian Imperial Bank of Commerce.

Meanwhile the BoE noted that the risks to growth and inflation are broadly balanced.

Turning to the British economy’s performance during the first three months of 2006, the BoE added:

Manufacturing output picked up and business services remained buoyant, but sectors more dependent on consumption slowed. Business surveys point to a strengthening of growth in the second quarter.

The British economy grew by 0.6 per cent in the first quarter of 2006, matching the previous three-month period, according to recent official data.

Gross domestic product (GDP) grew by 2.2 per cent during the three months ended March 31 from the same quarter in 2005, marking the highest annual rate since the fourth quarter of 2004.—AFP