The Bank of England said there were significant risks to the outlook for growth and inflation, and indicated prompt action may be required to boost the economy.

In its quarterly report, the bank said inflation was projected to move above the 2.5 per cent target in the near-term, dip slightly below to-wards the end of next year and then edge back up towards the target in two years' time.

Growth was expected to settle at about trend over the next two years.

But it warned: "Significant risks to the outlook for growth and inflation remain."

One risk was United States consumer spending might falter and the euro area could remain sluggish, threatening the global recovery.

A second was large house price rises in the UK might continue for a while yet, leading ultimately to a more abrupt slowdown in both house price inflation and consumer spending growth.

A third risk was the impact on wages and prices caused by inc-reases in National Insurance contributions, due next spring, might be greater than it was anticipating.

The bank said: "The crystallisation of any of these risks could have material implications for the prospect for growth and inflation and thus for policy."

Overall, it saw the risks to growth weighted to the downside and inflation slightly to the upside.

Last week's decision to keep interest rates on hold at four per cent was made bearing in mind the substantial risks and that it was appropriate at present.

The decision, holding rates at their 38-year low for the 12th consecutive month, had surprised some economists who had expected the bank to follow an agressive rate cut from the United States Federal Reserve with a cut of its own.