Five vital Bank of England charts as UK growth is downgraded and inflation is forecast to rise

The Bank of England's Monetary Policy Committee has posted its latest 78-page report outlining its musings on the future for inflation and the economy. The outlook made for grim reading, as while the Bank cut base rate from 4.75 per cent to 4.5 per cent, its lowest since June 2023, it also painted a gloomy picture on the UK economy. The Bank published its quarterly Monetary Policy Report, an in-depth view on where it sees the economy going and how it plans to use interest rates to control inflation.

According to the Bank, inflation will rise to 3.7 per cent in the first half of this year, before falling back to below its 2 per cent target. In a blow for Rachel Reeves, the Bank downgraded its GDP growth forecast for this year. We pick out five crucial Bank of England charts you need to see - and explain what they mean. Forecast: The Bank of England expects inflation to rise back above the 2% target this year.

The Bank said inflation was likely to increase 'temporarily' above its 2 per cent target this year, before falling back below target. In a blow for cash-strapped households, it said inflation would rise to 3.7 per cent in the first half of this year, amid higher energy and water bills. Inflation will only then eventually return to target in the final quarter of 2027, two quarters later than the Bank predicted in November.

The Bank said: 'Inflation is expected to fall back to the 2 per cent target after that. But the economy may not evolve as expected, including because there could be global shocks. 'For example, global trade tariffs or developments in the Middle East could impact some prices.'. Consumer price inflation was 2.5 per cent in the year to December, down from 2.6 per cent in the year to November. 'Domestic inflationary pressures are moderating, but they remain somewhat elevated, and some indicators have eased more slowly than expected', the Bank said on Thursday.

The inflation forecast is vital in terms of understanding what the Bank of England may do with interest rates and how this could have an impact on mortgage rates and savings rates. These are heavily affected by market expectations on when interest rates will fall. Gloomy: The Bank said indicators of business and consumer confidence 'have declined'. The Bank downgraded its GDP growth forecast from 1.5 per cent to 0.75 per cent in 2025.

In its report, the Bank said: 'GDP growth has been weaker than expected at the time of the November Monetary Policy Report, and indicators of business and consumer confidence have declined.'. However, the Bank said that it is forecasting GDP growth to 'pick up' from the middle of this year. It added: 'The labour market has continued to ease and is judged to be broadly in balance. 'Productivity growth has been weaker than previously estimated, and the Committee judges that growth in the supply capacity of the economy has weakened.

'As a result, the recent slowdown in demand is judged to have led to only a small margin of slack opening up.'. On Thursday, Rachel Reeves said: 'Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people's pockets.'. In October just after the Autumn Budget, the Office for Budget Responsibility said it expected the economy to grow by 1.1 per cent in 2024, up from a previous forecast of 0.8 per cent.

The Office for Budget Responsibility will publish its latest assessment of the UK economy on 26 March.  It upgraded its growth forecast for this year, but downgraded forecasts for the following three years. In a note published this week, Pantheon Macroeconomics cut their 2025 growth projections to 1.1 per cent, down from 1.3 per cent previously. This week EY also reduced its 2025 growth projections to 1 per cent, down from the its 1.5 per cent forecast in October.

Predictions: Bank of England global base rate forecasts. What's next? The pace of interest rate cuts is expected to be slower. The Bank includes market expectations for base rate in its report. This is not an exact guide to where rates will be but shows the general level they are expected to be at by forecasters. It showed UK interest rates at 4.6 per cent at the end of March this year. After today's cut to 4.5 per cent they have now reached that level and so are in line with forecasts.

Rates are then seen easing to 4.2 per cent by early next year and slowly falling to 4 per cent by the first quarter of 2028. It is possible, however, that market expectations will shift to more cuts on today's gloomy outlook and these forecasts are already out of date. Andrew Bailey, the Bank’s Governor, said: 'We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.'.