Britain may have to wait a little longer before exiting a recession that has sent the nation's annual inflation rate falling to the lowest level in five years, analysts said yesterday.
Britain is "on the brink" of ending a deep recession after sentiment improved in the third quarter but the economy remains "frail" the British Chamber of Commerce said in a quarterly report.
The BCC report contrasts with many analysts who believe Britain has exited recession by likely returning to positive gross domestic product growth between July and September.
Britain must wait until October 23 for official data confirming whether the nation has indeed ended its worst recession in decades that began in the second quarter of 2008.
"The Q3 results support our assessment that the UK economy is on the brink of leaving recession," BCC chief economist David Kern said in a statement.
"However, the improvement is not sufficiently strong to allow us to conclude without doubt that GDP has already returned to positive growth. The economy is still frail and the emerging recovery is vulnerable to a setback," Mr Kern added.
Elsewhere yesterday, official data revealed that the annual inflation rate in recession-hit Britain had slid to 1.1 per cent in September, the lowest level for five years as energy prices steadied.
Analysts' consensus forecast had been for an annual inflation rise of 1.3 per cent.
The annual inflation rate last stood at 1.1 per cent in September 2004. The last time it came under this level was in September 2002, when the rate hit one per cent.
"For once, consumer price inflation surprised on the downside in September as it fell to a five-year low," said IHS Global Insight analyst Howard Archer.
"September will probably prove the floor in annual consumer price inflation as oil prices fell back very sharply in the final months of 2008 and in early 2009."
Mr Archer added that inflation would win support in coming months also from an increase in tax on goods and services.
Value Added Tax was cut to 15 per cent in December to help consumers during Britain's recession. However the rate is set to return to its pre-recession level of 17.5 per cent rate in January.
"Annual consumer price inflation is likely to rise back above the Bank of England's two per cent target around the turn of the year and it could near 2.5 per cent during the first half of 2010," Mr Archer forecast.
The Bank of England's main task is to try and use monetary policy to keep annual British inflation close to a government-set target of two per cent.
The BoE is forecast to keep its key lending rate at a record-low 0.50 per cent until at least 2011 as Britain recovers from recession.
The centre for economics and business research, an independent consultancy behind the forecast published on Monday, added that British borrowing costs would remain below two per cent up until 2014.
As well as slashing interest rates in a bid to help pull Britain free of recession, the BoE has pumped out £175 billion (€194 billion) of new money to encourage banks to increase their lending.
The centre for economics and business research on Monday predicted that the BoE would eventually increase its extraordinary policy of money creation, known as quantitative easing by an extra £75 billion.
Under QE, the BoE creates money by buying bonds from commercial institutions in the hope of boosting lending in the economy.
Britain, like the United States, has yet to officially join other major economies France, Germany and Japan out of recession following the worst global downturn since the 1930s.