Bank of England downgrades forecasts for UK economic growth

London CNN  — 

The Bank of England downgraded its forecasts for UK economic growth Thursday and said it would take longer than previously expected for inflation to come back down to its 2% target.

The central bank now expects gross domestic product to have flatlined in the July-to-September quarter and to grow just 0.1% in the current quarter, gloomier forecasts than its projections in August.

Despite the economic slowdown, inflation will return to target only at the end of 2025, roughly six months later than previously forecast.

The Bank of England kept interest rates unchanged for the second time in a row as data shows the economy is weakening and inflation easing.

The decision to hold fire again, after a pause in September that followed 14 successive rate hikes, keeps the main borrowing cost for commercial banks in the United Kingdom at 5.25%. That is the highest level since February 2008.

The Federal Reserve also kept rates on hold Wednesday, while the European Central Bank paused its rate-hiking campaign for the first time in 15 months last week.

All three central banks pointed to a further slowdown in economic activity, as higher borrowing costs dampen demand.

UK consumer prices increased 6.7% in September compared with a year earlier, at the same rate as in August when inflation unexpectedly eased. Food prices notched their first monthly decline in two years in September, according to the Office for National Statistics. But energy prices fell at a much slower annual pace than in August.

Core inflation, which strips out volatile food and energy costs, slowed to 6.1%, from 6.2% in August.

Gross domestic product, meanwhile, grew 0.2% in August compared with the previous month, following a fall of 0.6% in July.

“Overall, the economy is not in recession, but it doesn’t have much underlying momentum either. And the drag from higher interest rates will continue to grow,” Ruth Gregory, deputy chief UK economist at Capital Economics, said in a note last month. The consultancy judges that the UK will enter a recession later this year, as GDP falls in the third and fourth quarters.

— This is a developing story and will be updated.