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UK economy to grow slower than expected

The Bank of England has cut its growth outlook for the UK economy from 3.5% to 3%.

The Bank's governor Mervyn King said the economic recovery would continue, but the overall outlook was weaker than expected.

King said: "Whereas crises occur suddenly, they fade only gradually. It will take many years before bank balance sheets and fiscal positions return to anything like normal. In the meantime they will act as headwinds to the recovery."

King said conditions were not easing as quickly as the Bank of England had expected and the Government's fiscal measures would also dampen growth - although they would remove some long-term downside risks to the economy.

After a drop in house prices for the first time this year was reported yesterday, daily newspapers ran speculation on a double-dip recession.

However, a poll of 50 economists by Reuters believe there is only a small  chance of that happening, with a slighter slower recovery than expected – echoing the views from the Bank of England.

The Reuters survey was taken over the past week and predicted the UK economy will grow 0.5% in the third quarter and then between 0.3-0.5% per quarter from there until the end of 2011.

John Hawksworth, head of macroeconomics at PricewaterhouseCooper told Reuters: “Growth was unexpectedly strong in the second quarter, but we expect the rate of expansion to slow in the second half of the year and remain relatively subdued in 2011 as the fiscal squeeze begins in earnest.”

The poll predicted the economy would grow 1.4% this year, slightly better than thought last month, and 1.9% in 2011 -- slightly worse than in July's poll. Forecasts for 2011 ranged from 0.9 to 2.7% growth.

In an interview with The Guardian, business secretary Vince Cable admitted there was a risk of a double-dip recession but the odds were “well below 50-50”.

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