The UK’s economic growth forecast for 2012 has been slashed by the Bank of England to zero from 0.8% in its May estimate, as the eurozone crisis continues to blight Britain's ailing economy.
The bank's governor, Sir Mervyn King, said the underlying picture is that output has been at best “broadly flat” over the past two years and has “continually disappointed” expectations of a recovery.
The rate of inflation is now expected to hit the government's 2% target towards the end of this year, earlier than previously expected, and could slow further to around 1.5% towards the end of 2013, the Bank said. It also signalled that it did not expect interest rates to rise above 0.5% until 2015.
The figures come five years after the credit crunch first hit, raising questions over the government's handling of the crisis.
However King stood by the government's plans for economic recovery, telling journalists the figures did not mean it was time for a "plan B".
The downbeat outlook will increase the chances of further emergency support measures, including a possible interest rate cut beyond the current record low of 0.5% and a further cash injection to the Bank's quantitative easing programme.
Earlier a report by Which? said the public remain more disillusioned with the banking sector than ever before, with 71% of people saying that banks have not learnt their lesson from the crisis.
A survey of 2,000 adults conducted by Populus for the consumer watchdog found nearly half of people were worried about mortgage rates and their level of household debt.
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“Five years on from the beginning of the financial crisis, public confidence in the banking industry is at an all time low, with a series of scandals exposing mis-management and corruption at the very heart of the banking system that have cost UK consumers dear," Which? chief executive Peter Vicary-Smith said.
He called on the parliamentary banking inquiry to propose "fundamental change to the culture and practices of the banks and put the best interests of consumers back at the centre of reforms".
"Nothing should be off the table if the government is to rebuild consumer confidence in this essential service.”