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The Bank of England (BoE) has cut the UK's predicted economic growth forecast, indicating that there will be no growth to the economy in 2012.
Its revised forecast, down from 0.8 predicted in May and two per cent predicted a year ago, claims there will be close to zero growth for 2012.
It follows the news that the UK slipped deeper into recession in the months from April to June, with GDP output falling by 0.7 per cent - the third consecutive quarter of contraction.
The Bank of England's governor Mervyn King who made the announcement said that the recession in the euro area was 'damaging demand for our exports' and causing 'uncertainty for investment.'
'The big picture is that output's been flat for two years,' he told a news conference.
He added that instability in the Eurozone would continue to cause uncertainty and unpredictable recovery rates for the future. He also said that any positive contribution to the economy from the Olympics through tickets sales and TV rights would be 'small'.
Meanwhile, King played down speculation that interest rates - currently at a record low of 0.5 per cent - could be further cut to 0.25 per cent.
The BoE's Monetary Policy Committee voted last week to keep interest rates on hold and keep its quantitative easing programme on hold. The last £50 billion round of a total £375 billion in monetary stimulus was injected into the economy in July.
Elsewhere, the BoE reduced its inflation forecast following an unexpected fall to 2.4 per cent in June. It predicted that inflation would fall quickly to its two per cent target by the end of 2012, remaining at or slightly below that level over the next two years.
Speaking shortly before the announcement, David Cameron told LBC radio: "Yes, it's tough, yes, the growth figures have been disappointing, but there is a rebalancing of the economy taking place, and we just have to roll up our sleeves."