TROUBLE FOR BROWN
Attention will now focus on the Bank's new inflation forecasts next week for a clearer idea of the BoE Monetary Policy Committee's latest thinking.
Governor Mervyn King said last week that much of the current doom and gloom is being overdone. The British economy is still expected to grow 1.6 percent this year, according to the IMF, the fastest rate among the Group of Seven rich nations.
But there is little doubt the economy - once the jewel in Prime Minister Gordon Brown's crown - is losing its sparkle, particularly as concern grows that the bursting of the housing market bubble could herald more serious economic trouble.
Consumer confidence has fallen to levels not seen since the recession of the 1990s and voters last week punished the Labour Party by knocking it into third place in local elections.
With his leadership in question, Brown is hoping for an economic rebound in time for a national election that must take place by May, 2010.
Brown, who was chancellor for a decade of prosperity until last year, has said the economy will be his main focus. He has called on mortgage lenders to make borrowing easier for British consumers, who are already in debt to the tune of 1.5 trillion pounds.
The Bank, however, has made clear it does not want to see a return to what it has characterised as the excessive lending of recent years. Its report next week is likely to say that an extended period of slower growth will be needed to ensure inflation does not get out of control.
"That economic slowdown is already starting to emerge, but it is early days so far," said Michael Saunders, economist at Citigroup. "The economy is likely to slow sharply further in coming months. Most of the economic pain still lies ahead."
