The Bank of England will indicate later this week whether it is open to a fresh round of quantitative easing in the face of ongoing economic headwinds.
The central bank will release its quarterly inflation report on Wednesday, which is likely to support the view that interest rates will stay at 0.5 per cent deep into 2012.
Howard Archer, economist at IHS Global Insight, said: "The Bank of England is also likely to indicate that it is keeping the door open to more quantitative easing, particularly if the heightened financial turmoil persists."
The Bank is likely to raise its near-term consumer price inflation forecasts to more than 5 per cent in the autumn, Mr Archer said, "due to the size of the utility price rises that have been announced".
He added that the Bank would still forecast inflation falling back to its 2 per cent target level after two years, as the impact of higher VAT, sterling's weakness and high oil and commodity prices wane.
The Bank's Monetary Policy Committee voted in its August meeting to keep interest rates at record lows and the stock of quantitative easing unchanged at £200bn.
There will be further bad news for growth as the Bank "will undoubtedly have to lower its GDP growth forecasts for 2011 and may have to trim its 2012 projection as well", according to Mr Archer.
In May, it forecast GDP growth of 1.4 per cent for the second quarter, but the actual figure was just 0.7 per cent. For the fourth quarter it had predicted growth of 2.4 per cent this year and 2.5 per cent for all of 2012.
Mr Archer concluded that the general tone would suggest interest rates were unlikely to rise for some time, expecting it to "hold off from raising interest rates until the third quarter of 2012".Reuse content