The Bank of England has cut its predictions for economic growth from 3.5% to closer to 3.0%.

At the same time it predicts that inflation will stay above the government’s 2.0% target until the end of 2011. It blames this largely on the planned rise in VAT to 20%.

Meanwhile, the number of people claiming jobless benefits fell less than expected in July while long-term unemployment rose to its highest level in 13 years.

Martin Gahbauer, chief economist at the Nationwide, said: “The reduction in the MPC’s expectations for economic growth comes as no surprise