Speaking at the press conference to launch the report, the BBC reports that Bank of England governor Mervyn King said UK economic recovery has "only just started" (external website). King continued:

The past year has been extremely painful for most economies around the world. There is a more buoyant picture looking ahead, that is encouraging. But this does not alter the extent of the challenges facing the economy.

Economic growth: "A recovery in output is likely"

The Bank of England's analysis of the prospects for UK economic growth - as set out in the Inflation Report itself - finds that:

A recovery in output is likely [...] Output growth should continue to recover over the coming quarters, boosted by the stock cycle, the low level of official
interest rates, the Bank's programme of asset purchases and the lower sterling exchange rate.

However, the report also sounds a note of caution regarding the extent of economic recovery that can be expected. It says:

Nonetheless output is likely to remain some way below the level consistent with a continuation of its pre-recession trend throughout the forecast period [which extends to the fourth quarter of 2012], reflecting both lower potential output, but also sustained weakness of demand relative to that lower level of potential supply.

The previous quarterly Inflation Report - published in August 2009 - refused to make a specific forecast on UK gross domestic product (GDP) growth (or otherwise), in response to the pervasive uncertainty of the global economic outlook.

Today's report is somewhat sunnier in outlook, going so far as to state that recent official estimates of GDP growth in the third quarter of 2009 - which wrong-footed analysts by recording a 0.4% fall in growth, rather than the expected exit from recession - are "likely to be revised up a little in due course." It continues:

Initial estimates of GDP growth are prone to revision as more data become available. Evidence from business surveys in Q3 is consistent with a somewhat stronger outturn for GDP growth than suggested by the preliminary estimate.

It is worth noting here that the Office for National Statistics (ONS) will issue its revised estimates for GDP growth in the third quarter of 2009 on Tuesday 25 November 2009. The Times speculates that the Government is pinning its hopes on these revised estimates (external website) signalling a return to economic growth. It says that the Government has accordingly delayed the publication of its Pre-Budget Report 2009 (which will also draw the battle lines for the 2010 general election) until 9 December 2009 in order to capitalise on the hoped-for good news.

The EEF summarises the Bank of England's fan-chart projections for GDP growth over the next two years as follows:

The Bank of England revised its central forecasts for GDP growth to 2.1% in 2010 and 4.0% in 2010, a much stronger outlook for growth than the 1.9% and 3.0%, respectively, expected in August.

Inflation will "rise sharply"

The Bank of England expects inflation - on its target consumer prices index (CPI) measure - "to rise sharply above the 2%  target in the near term". This will result from "higher petrol price inflation and the reversal of last year's reduction in VAT."

Unemployment will continue to rise

Unemployment continues to rise, but the rate of increase continues to slow, according to latest figures published earlier today.

The Bank of England expects unemployment to continue on its current upward path over its forecast period, although the rate of increase is uncertain. It says:

The extent to which unemployment continues to rise will depend on the outlook for employment and developments in labour supply.

Pay awards "have weakened markedly"

The Inflation Report also considers the current state of pay awards. Drawing on statistical data from IRS (part of the XpertHR group) and other commentators, it observes that:

Pay settlements, which make the largest contribution to overall earnings growth on average, have weakened markedly in 2009. Around 40% of settlements in the private sector in the year to date have been for pay freezes.

The Bank of England notes that this slowdown in earnings growth could in part reflect "increased wage flexibility which could have contributed to the relative resilience of employment".