Bank Of England Cautions On Economic Recovery

JANE WARDELL

LONDON (AP) — The Bank of England raised its forecasts for economic growth and inflation on Wednesday, but warned that Britain's economic recovery is just beginning and that its strength remains "highly uncertain."

The relatively upbeat report from the central bank, alongside improved unemployment figures also released Wednesday, provided some good news for Prime Minister Gordon Brown's embattled Labour Party ahead of next year's general election.

But some economists suggested that the Bank of England had overestimated the prospects for recovery and failed to factor in a likely tightening in fiscal policy after the election, which must be called by the start of June.

Bank Governor Mervyn King said the bank's moves to slash interest rates and pump billions of pounds into the economy, increased spending by the government and the depreciation of the British pound were likely to drive a recovery.

In its quarterly inflation report, the bank predicted that the economy will return to growth by the beginning of next year, and expand by about 3.75 percent by the end of 2011 — faster than it had forecast in August.