The Bank of England’s updated assessment of growth and inflation prospects in the UK will be the key event for investors this week, alongside trading updates from major players in the insurance and travel sectors.

Slowing growth and a fresh spike in the cost of living are set to be the main gloomy messages from the Bank of England’s latest quarterly forecasts on Wednesday.

Governor Mervyn King has already signalled his doubts over a “sustained” recovery despite the rapid 1.1 per cent advance seen by the economy between April and June.

Chancellor George Osborne’s emergency Budget will be reflected in growth estimates for this year, which are likely to be pared back from the 1.5 per cent annual growth estimated by the Bank’s May projections.

Although the Governor does not believe the Budget has made a “significant difference” to the chances of a double-dip recession, Mr Osborne’s deficit-tackling measures add up to a £113 billion clawback from the taxpayer by 2014/15.

And the Office for Budget Responsibility’s own forecasts nudged down growth estimates for 2010 to 1.2 per cent in June, with output in the second half of the year set to slow.

Capital Economics’ Roger Bootle warned: “The recovery has started to stall even before the fiscal squeeze has really got going.

“Given the sizeable additional fiscal tightening announced in last month’s Budget, I expect the MPC to revise down its GDP growth forecast – although its forecasts will probably still look far too optimistic.”

Meanwhile the hike in VAT to 20 per cent due to kick in next year will keep inflation well above the Bank’s two per cent inflation target for most of next year. Inflation is proving far stickier than previously forecast by the bank – although underlying wage growth is lagging far behind, putting the squeeze on households for the next few years.

Investec economist David Page added: “Weaker growth should lower the inflation profile over the medium term and extend the downside risks.

“However, in the short-term, stickier service sector inflation and a VAT rate rise in January, look likely to push the projection higher.

“The Monetary Policy Committee will try to look through some of the shorter-term distortions to the inflation projection and focus on the weakening medium-term outlook. But short-term dynamics can influence inflation expectations and the Bank will not be able to ignore them entirely.”

Insurance giants Standard Life and Prudential are the latest to report half-year figures, with results due on Wednesday and Thursday respectively.

Prudential’s figures come as the group attempts to make peace with its shareholders following a tumultuous first half.

The group incurred the wrath of shareholders following the humiliating failure of its £24 billion deal to buy the Asian arm of bailed-out US insurance giant AIG. Shareholders were left with a £450 million bill from the collapse of the venture.

But there may be some much-needed cheer for shareholders as Pru is expected to announce a boost to the divi payout.

This would follow the lead of rivals Legal & General and Aviva, which have both unveiled dividend increases alongside strong first half figures as the sector bounces back from the financial crisis.

Standard Life is expected to see earnings slip as it comes up against tough comparatives for a year earlier.

Panmure Gordon analysts are expecting a 16 per ecnt drop in operating profits on a European embedded value basis to £293 million.

But they said this will belie an impressive rise in worldwide life and pensions – up 26 per cent to £9.4 billion – as the sector benefits from a greater willingness for people to save in recent months.

Major tour operators Thomas Cook and Thomson owner TUI Travel will both give updates on a difficult trading period next week after disruption caused by Iceland’s volcanic ash cloud.

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