City revises GDP growth to 1%, inflation forecast up

City forecasters have raised their inflation expectations while cutting growth outlooks for the UK economy. This shift comes as uncertainty grows ahead of the Bank of England's interest rate decision later this week. Recent data from HM Treasury indicates that GDP growth is now expected to be just 1% this year, down from previous estimates of 1.1% and 1.2%. This follows a report showing the economy actually contracted by 0.1% at the beginning of the year. The OECD has also reduced its growth forecast for the UK to 1.4% for 2025. Inflation is now anticipated to average 3% this year, an increase from last month’s prediction of 2.8%. This is significantly above the Bank of England's target of 2%. The consumer price index unexpectedly rose to 3% in January, marking its highest level in ten months, driven in part by higher energy costs. Given these developments, traders expect the Bank of England will keep interest rates stable at 4.5% during Thursday’s meeting. Economists believe there is only a minimal chance of a rate cut. Thomas Pugh from RSM UK noted that the distribution of votes in the meeting might give insights into future rate decisions. With wage growth currently at 6%, businesses are likely to face rising employment costs starting in April. These costs may contribute to rising prices, further complicating the economic landscape. Overall, the outlook for both growth and inflation remains challenging.