The Bank of England (BoE) said the outlook for UK GDP growth in 2003 is "somewhat weaker" than its previous estimate while the profile for inflation is now a "little stronger" than before.
The BoE now sees 2003 GDP growth at around a trend rate of 2.5 per cent, down from around 3 per cent previously. Next year, growth is projected to drop below trend, reaching only around 2 per cent by the end of 2004.
The BoE also highlighted risks to the outlook from uncertainty about a possible war against Iraq.
"The unusual uncertainty relating to the duration and impact of a possible war in Iraq has led the Monetary Policy Committee to widen the range of possible outcomes," BoE said.
In its first inflation report for the year, the BoE said: "Under the central projection, four-quarter GDP growth stays around trend during the first half of the forecast period and then eases back a little."
According to the bank, moderating consumer spending will be offset by "robust growth" in public expenditure and by a "gradual pick-up" in export demand and investment.
It added that a fall in equity prices will likely put "downward pressure" on investment and consumption.
AFP