The Bank forecasts that inflation will continue to fall sharply during 2012 following its 5.2 per cent peak last September.

The reason for the sharp fall was the impact of the previous VAT rise last January and petrol prices dropping out of the 12-month comparison.

However, it said inflation was likely to fall to below the Bank’s two per cent target for a part of the three year forecast period.

It could fall below two per cent in the final quarter of 2012 then fall further to 1.5 per cent in  2013.

For this reason, the Bank judged it necessary to increase the size of the asset purchase programme by £50bn to £325bn.

Bank of England governor Mervyn King said: “Further falls in inflation are in prospect as the effect in external factors wanes, and a weak near-term growth outlook adds to the margin of slack in the economy. Nevertheless, growth is likely to recover gradually, supported by rising real incomes and the additional stimulus provided by the asset purchases last week.”

Regarding GDP growth, he said events such as the Queen’s Diamond Jubilee would create a “zig-zag” effect this year.

“For much of this year, there is likely to be a ‘zig-zag’ pattern of alternating positive and negative quarterly growth rates reflecting the additional Bank Holiday for the Queen’s Diamond Jubilee, so that it will be harder than usual to interpret the official estimates of growth.”