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Growth is set to slow and inflation is on the rise, the monetary policy committee (MPC) has announced.
Its latest projections were influenced, it said by the effect of "tighter credit conditions for households and businesses" and "rising energy, food and import prices".
"The impact of tighter credit conditions is apparent in property markets, and is particularly likely to affect investment in commercial and residential property and perhaps business investment more generally," Mervyn King, chairman of the MPC warned.
Announcing the report, he explained the committee "faces a difficult balancing act" in its aim of bringing inflation back to its two per cent target.
"It is important to remember what monetary policy can and cannot achieve," he said.
"The changes we are seeing in financial markets are one aspect of a wider shift in the world economy as some of the imbalances unwind."
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