The Bank of England says the UK has probably entered a recession in the middle of 2008 and is likely to continue to contract well into 2009. In its quarterly inflation report, the Bank warns that the economic landscape has changed dramatically since August. It says that the UK economy could shrink by 2% over the next year, much worse than its previous forecast. Bank governor Mervyn King also said the Bank would be prepared to cut interest rates further if needed. "[It is] very difficult to know precisely how long we'll be in recession," Mr King said. "I think we probably are in recession now." The Bank now also expects inflation to decline to 1% by 2010, below its 2% target, in a dramatic change to its last forecast. This would mean that the Bank had scope for further rate cuts.

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