LONDON, Aug 7: The Bank of England warned Wednesday that falling equity prices were likely to dampen economic growth and hinted that interest rates were unlikely to rise in the near future.

“Recent data suggest that a gradual, albeit patchy, pick-up in economic activity is under way in the major overseas economies,” the British central bank said it its quarterly report.

It added that the recent share price rout “could dampen consumer spending and discourage investment, but the effect may be tempered by the impact of lower market interest rates.”

It sees a gradual recovery in British growth to around 2.5-3.0 per cent over the next two years as firmer global demand and higher public spending offset the fall-off in consumer demand.

Underlying inflation is expected to remain stand close to its 2.5-percent official target in two years’ time.

That contrasts with the previous report in which it warned that inflation would likely overshoot its target.

At the time that was widely taken by the financial markets as a signal that the bank was set to raise interest rates in an effort to curb rampant house price inflation and buoyant consumer spending.

But with global stock markets having since plunged by around 20 percent, financial markets have begun to speculate that the next move in British interest rates may even be down.

The Bank of England’s main lending rate is already at a 38-year low of 4.0 percent.

The Bank of England’s deputy governor, Mervyn King, told reporters that the bank’s previous forecast had implied that if its central projection had been correct, then interest rates would have needed to rise.

“Since then, the falls in equity prices and other developments have brought the forecast more into line with the target,” King said.—AFP