The Bank of England has downgraded its GDP growth forecast in today’s quarterly Inflation Report.

The Bank now predicts a growth rate of around one per cent next year, down from the two per cent growth rate predicted in August.

The downgrade comes after a slight fall in inflation yesterday from 5.2 per cent to 5.0 per cent.

The reasons given for the downgrade were slowing global demand and increased strains on banking and sovereign funding markets.

The report read: “These factors, along with fiscal consolidation and squeeze on households’ real income, are likely to weigh heavily on UK growth in the near term.

“Thereafter, the recovery should gain traction, supported by continued monetary stimulus and gentle recovery in real incomes.”

However, the lack of an effective policy in the Eurozone was the biggest threat to Britain’s growth.

“Implementation of a credible and effective policy response in the euro area would help to reduce uncertainty and so support UK growth, but its absence poses the single biggest risk to domestic recovery.”

It also forecast that inflation will fall as low as 1.3 per cent in the next two years.

This news fuels speculation that the Bank may have to embark on another round of quantitative easing.

Analysts forecast a possible further £50bn being added to the asset purchase programme bringing the total to £325bn.

It added £75bn to the asset purchase programme in October ahead of fears that inflation would fall below two per cent next year.