The Bank of England has warned that the UK economy could now face recession this year.

Expectations for consumer price index inflation have been revised upwards and are now expected to increase to 3.7% by the end of 2008. Gross Domestic Product estimates have also been revised downwards.

Rising inflation threatens further rate increases which will reduce growth. Rising prices also undermine growth. Today British Gas has warned customers of raising its gas tariffs and figures of a 40% rise were mentioned.

The price of crude oil has risen 70% a barrel since last year and now stands at more than $130.

The Bank of England is left in a difficult situation. If they respond to the growing inflationary pressures by raising interest rates the cost could be devastating in terms of lost jobs, lost wages and repossessed homes. Their best hope is that the economy will slow naturally and therefore dampen price and wage pressures and in turn bring inflation down again.

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