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The Bank has cut its 2011 and 2012 growth predictions to about 1%, warning the global economic outlook had "worsened".  Delivering the Bank's quarterly inflation report, Sir Mervyn said the eurozone debt crisis was the "single biggest risk" to the UK.  Sir Mervyn said inflation had peaked and was likely to fall sharply over the next few years. The rate of Consumer Prices Index (CPI) inflation in the UK fell slightly to 5% during October, down from a rate of 5.2% the month before.

On top of this bad news, we now have the jobless total for 16 to 24-year-olds hit a record of 1.02 million in the quarter and female unemployment was at its highest for 23 years. Sir Mervyn also said that the UK's economic problems were shared by other countries.

"This is also true here in the United Kingdom, where activity could be broadly flat until the middle of next year."
The unemployment rate of 8.3% is the highest since 1996 and the total number of unemployed people the highest since 1994.

The number of women out of work increased by 43,000 to 1.09 million, the highest level since February 1988. The number of unemployed people rose in every part of the UK, except for the East Midlands, where it remained unchanged, and the North West and Northern Ireland, where the number of unemployed fell. The unemployment rate was highest in the North East, at 11.6%.

Eurozone woes
Sir Mervyn said the problems surrounding the eurozone countries would continue to affect the UK, adding that the "uncertainty" would have "some potential impact" on business investment and household spending. "Since August, difficulties in Europe have continued to dominate. The worsening global problems, imbalances and less competitiveness remain," he said. "The move towards a more balanced economy is going to be long and arduous."

But the governor added real take-home pay should slowly start to increase next year. City analysts said that both lower growth and inflation forecasts showed the Bank would leave interest rates at the low level of 0.5% into 2013.

"The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed," said Vicky Redwood, chief UK economist at Capital Economics.

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