The Bank of England is downgrading its forecast for the British economy's growth this year from 2.9 percent to 2.5 percent.
Governor Mark Carney sounded a pessimistic note Wednesday on productivity, saying it remains weak and is expected to stay below past average growth rates.
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The bank said interest rates are expected to increase to its 2 percent target within two years, as falls in oil and food prices ease. Interest rates are at a record low of 0.5 percent.
Britain's economy is one of the fastest-growing among developed nations but the bank is anxious to stoke the recovery and push up inflation, which is weak.
Prime Minister David Cameron, who has just won a second term in office, has pledged to continue budget cuts designed to bolster growth.