Bank warning fuels anxiety over recovery

Governor Mervyn King said "a choppy recovery" for the UK was likely as the full impact of spending cuts in Chancellor George Osborne's emergency Budget kicked in next year.

The Budget's VAT hike and the looming threat of rising gas bills next year would also keep inflation above target throughout 2011, the Bank warned.

Its quarterly report painted a grim picture of disposable incomes hit by the deficit-tackling measures, with some firms facing lower public sector demand following the cuts.

Mr King said there was "great uncertainty" over the outlook for the US as well as the eurozone - the UK's biggest trading partner - hampering efforts to build an export-led recovery.

The US Federal Reserve last night said the pace of its own recovery had slowed and lifted its own efforts to boost the money supply.

The latest gloom comes after recent surveys showed a sharp slowdown in high street sales, falling house prices and consumer confidence at its lowest for more than a year.

Unemployment figures offered some relief, after jobless totals fell to 2.46 million in the three months to June - but the OBR suggests around 600,000 public sector job cuts in the next five years.