British economic growth will remain subdued for now but then pick up faster than previously thought, the Bank of England said on Wednesday, causing markets to ditch expectations for a series of interest rate cuts, Reuters reported. A week after it cut borrowing costs, the central bank said sluggish consumer spending had dented the near-term economic outlook but it predicted growth would be above 3 percent in two years time, a stronger long-term forecast than made in May. Inflation would likely rise further to be above its 2 percent target in the next few months, boosted by a spike in oil prices, the Bank said in its quarterly Inflation Report. It would then dip but rise again to be above target in two years. Financial markets quickly read the report as pouring cold water on hopes for a new cycle of interest rate cuts. The Bank trimmed its key rate to 4.5 percent last week -- its first cut in over two years. Sterling hit a five-week high against the dollar and rose to a one-week peak on the euro after the inflation report. Economists said the Bank's stronger outlook for inflation and a view stock prices would boost economic activity further out meant policymakers may be less aggressive in cutting borrowing costs than financial markets had expected. "The fact that they have inflation slightly above the 2 percent target in 2 years, I think is another indication that rates will not fall much further," said Ross Walker, UK economist at RBS Financial Markets. Short sterling interest futures fell, government bond futures pared gains and the pound rose against the dollar as markets re-assessed a view the Bank could cut rates again in coming months after last week's trim. --mor 1408 Local Time 1108 GMT
