The Bank of England (BoE) has stated that the UK’s economic recovery will be slower than previously estimated, with output likely to remain below pre-crisis levels for the near future.

It also warned that inflation is set to rise further, forecasting that growth will reach 3.2% by Q2 2011, having previously predicted a rise to 4%. The BoE went on to state that inflation will have been above 3% in January 2010 and will reach a peak of 3.5% before falling as low as 0.9%.

Mervyn King, governor of BoE, said: “The UK economy has continued to bump along the bottom, but a gradual recovery in output may now be in prospect. Spare capacity will press down on inflation in the medium term. But the near-term outlook is for inflation to rise further as the restoration of the standard rate of VAT to 17.5% and higher petrol prices impact on the CPI measure of inflation.”

The Monetary Policy Committee (MPC)s new forecasts come amid fears about the fragility of the recovery. The economy has been reported to have come out of recession in the final three months of 2009.