The economy will pick up a "little later" than expected with a slightly lower growth during 2004 than previously forecast, the Bank of England says.

In its quarterly inflation report, the Bank stuck by its earlier prediction, saying inflation was set to slip below Chancellor Gordon Brown's 2.5 per cent projection around the end of this year and run just below target through next year.

It added that inflation was projected to edge up to about the target rate over the remainder of the forecast period, which runs to 2005, as the depreciation of the pound earlier this year continues to feed through.

International prices are also expected to move higher while domestic cost pressures strengthen.

The Bank said gross domestic product (GDP) growth was provisionally estimated to increase by 0.3 per cent in the second quarter of 2003, below the rate expected at the time of its last inflation report in May.

Yesterday, the Bank said the broad picture remained one of "moderate growth" in consumer spending, accompanied by strong growth in public expenditure, a gradual improvement in the contribution of net trade and a modest increase in business investment.

Consumer spending had propped up the economy as manufacturing struggled over the past seven years.