Bank of England releases bleak Inflation Report

The Consumer Price Index (CPI) is likely to fall below its two per cent target in 2009, the Bank of England said today.

According to the new quarterly Inflation Report, the economic downturn is likely to pull CPI down, with the index bottoming out at 0.5 per cent towards the end of the year.

Most recent inflation figures show the index at 2.9 per cent.

Meanwhile, the Retail Price Index - which includes property prices - also remained negative, has gone below zero for the first time in half a century, dropping to -0.4 per cent.

The latest price moves signalled a further shift towards deflation conditions - or falling prices - in the UK.

These have the potential to majorly disrupt economic recovery, as negative price growth tends to depress consumer spending and makes debt repayments more difficult.

The Bank also revised its economic predictions today, signalling that it believes the recession will be even worse than it did in its last Inflation Report in February.

Groups including the European Union and the International Monetary Fund predict a decline in UK output of over four per cent in 2009.ADNFCR-2318-ID-19167065-ADNFCR