But policymakers are also clearly worried about rising inflationary pressures due to strong food and energy prices. They see the CPI rate reaching 3 percent by the middle of this year, just shy of the level which would force Governor Mervyn King to write an explanatory letter to the government.
The Bank forecasts economic growth will slow sharply to below 2 percent by the end of 2008 from roughly 3 percent now, before recovering to around 2.5 percent at the end of its two-year forecast period.
"Both developments are now more acute than in November and as a result the near-term outlook is one of inflation rising sharply alongside a marked slowing in growth," King told a news conference presenting the report.
Risks to the growth forecast were on the downside and those to inflation were balanced.
But King was careful to ward off talk of a sharp slowdown in the economy -- a far cry from conditions in the United States where the Federal Reserve has slashed borrowing costs by 125 basis points already this year to try to stave off recession.
"There is caution and there is concern but it's certainly not this doom and gloom message that you get from people connected with financial services and property," King said. "The data so far cannot be described as doom and gloom."
There was also much discussion in the inflation report of the recent fall in sterling. The pound is 6.1 percent below its level when the last report was issued in November.
One cause for the decline, the report argued, might be Britain's large current account deficit, the largest compared with GDP in the Group of Seven industrialised nations.
"The Monetary Policy Committee attaches weight to the possibility that much of the fall in sterling reflects a more persistent decline in the real exchange rate, consistent with a rebalancing in growth away from domestic demand and towards net trade," the report said.
