Wednesday, the latest quarterly Inflation Report from the Bank of England said CPI inflation is likely to drop below the central bank's target of 2% later this year.

The central bank said, Under the assumptions that Bank Rate moves in line with market rates and the stock of purchased assets financed by the issuance of central bank reserves reaches GBP 125 billion, it is more likely than not that CPI inflation will be below the 2% inflation target in the medium term.

The Inflation Report is produced quarterly by Bank staff under the guidance of the members of the Monetary Policy Committee.

The central bank estimates a 1.9% contraction in the first quarter of 2009, a larger decline than anticipated at the time of the February Report. The outlook for economic growth is unusually uncertain, the BoE revealed. The MPC sees a relatively slow recovery in economic activity.

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