The Bank of England lowered its economic growth outlook and forecast inflation to return to its 2 percent target within two years.
The economy is forecast to expand 2.5 percent in 2015, down from the prior projection of 2.9 percent, BoE said in its quarterly Inflation Report, released Wednesday. Growth is projected to be at or a little below its historic average throughout the forecast period.
The Monetary Policy Committee assessed that the amount of slack narrowed over the past six months and remains broadly in the region of 0.5 percent of GDP.
According to BoE, inflation will rise notably around the turn of the year. It is expected to rise further as wage and unit labor cost growth picks up and the effect of sterling's appreciation dissipates.
As the drag from domestic slack continues to fade, inflation is projected to return to target within two years and to move slightly above the target in the third year of the forecast period, the BoE said.
The forecast is based on the assumption that the bank rate would rise gradually to 1.4 percent by the second quarter of 2018.
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