The Bank of England's deputy governor Rachel Lomax has warned of a dramatic change during 2008 in the outlook for the UK economy
She said that there was uncertainty over the full impact of "the largest ever peacetime liquidity crisis" and predicts that the credit crisis will act as "a significant drag" which will reduce demand over the next two years.
In a speech to the Institute of Economic Affairs she said that inflation is also forecast to rise more sharply and Rachel Lomax warned this may lead to higher interest rates than many commentators expect if prices and wages rise further which they show every sign on doing. Higher utility bills are set to push up the Consumer Price Index (CPI) from next month.
Ms Lomax admitted the economic models usually used could not help to identify the extent of the impact of the credit crisis.
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