14/11/2012 10:34 GMT | Updated 14/01/2013 10:12 GMT

Bank of England Downgrades Growth Forecast For 2013

Bank of England governor Sir Mervyn King warned on Wednesday that UK output may shrink again as the economy continues its "zig-zag" recovery.

Presenting the Bank's quarterly inflation report, Sir Mervyn said GDP could decline in the final three months of this year after a return to growth in the third quarter gave an "overly optimistic impression".

The Bank downgraded its growth forecast for 2013 to around 1% as it warned output will remain below pre-financial crisis levels for the next three years.

mervyn king

Sir Mervyn warned that estimates "overly optimistic"

It also revised its inflation forecast, with the rate expected to fall towards the 2% target in the second half of next year, later than previously thought.

The forecast will slow the momentum of Chancellor George Osborne, who has seen three consecutive months of growth in GDP.

Economists have warned this was largely influenced by one-off factors and the underlying picture remains weak.

In its report, the Bank said the economy is likely to see a "sustained, but slow" recovery and that the growth will remain below its historical average until mid 2015.

Sir Mervyn said: "Output grew strongly in the third quarter. Welcome as that is, it is not a reliable guide to the future.

"Just as growth in the second quarter was depressed by one-off factors and gave a misleadingly weak picture of the economy, so growth in the third quarter has been boosted by one-off factors and gives an overly optimistic impression of the underlying trend.

"Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in the fourth quarter as the boost from the Olympics in the summer is reversed - indeed output may shrink a little this quarter."