Bank of England says inflation to remain high, but predicts 'modest, sustained' recovery

LONDON – The Bank of England predicted a modest and sustained economic recovery for Britain on Wednesday, but tempered hope that the worst might be over with predictions that inflation will remain above its targets for the next two years.

In presenting the central bank's quarterly inflation report, Governor Mervyn King offered a twinkling of optimism that good things might be in store for a country struggling to get back on track after the 2008 financial crisis. It has been in recession twice since then.

"This hasn't been a typical recession and it won't be a typical recovery," King said. "Nevertheless, a recovery is in sight."

The bank said the U.K. economy should pick up, growing by 0.5 percent in the second quarter of this year, and that the main risks to Britain's economic recovery continue to come from abroad. Many of the country's European trading partners are also suffering an economic downturn — France is in recession and Germany is barely growing.

However, it says inflation, which is stuck above the 2 percent target, is set to edge higher in coming months, partly due to a weakening in the value of the pound — which makes imports more expensive.

The Bank of England's inflation report was the first since official figures last month showed the U.K. had managed to avoid falling into a third recession since 2008 by growing 0.3 percent during the first quarter. The figure was better than expected and offered some breathing space to the government, which is facing criticism for its tough budget austerity policies.

Though rising energy, food and tuition bills are pressuring consumers, King said inflation will be "a little weaker" than expected in the last inflation report issued in February.

The bank now predicts the inflation rate will peak at 3.1 percent after the summer and that it will fall to the 2 percent target by the first quarter of 2015.

Since the last inflation report, oil and commodity prices have fallen, helping to temper inflation. Data on the construction and manufacturing sectors have been encouraging and the services sector has powered ahead.

But experts remain wary.

"There has been a fair bit of excitement about the renewed signs of life in the economy," said Vicky Redwood of Capital Economics before the announcement. "We would be wary of getting too absorbed in the ebb and flow of the data."

The International Monetary Fund has suggested that the British government might want to reconsider the pace of its austerity measures to help the recovery in the economy, whose output was worth 1.4 trillion pounds ($2.1 trillion) in 2012.