THE Bank of England dashed hopes for any early cut in interest rates yesterday by signalling that it is in no hurry to take any action, despite the sharpest fall in numbers in work since the end of the last recession.

Employment across the economy dropped 57,000 in the three months to the end of December, the steepest fall since 1993, according to ministers’ preferred survey measure. The unemployment rate on the same basis rose to a three-year high of 5.1 per cent.

However, in a more bullish than expected assessment that will help to ease pressure on Gordon Brown and other ministers, the Bank argued that the worst of the economy’s difficulties may already have passed.

After what Mervyn King, the Bank’s Governor, called a “rather shallow slowdown” last year, it now forecasts that growth is set to burst ahead in coming months.

The Bank’s latest forecasts, in its quarterly Inflation Report, project growth climbing back to a pacy annual rate of about 3 per cent by autumn — faster than the Bank expected in November — before easing off a little next year.

At the same time, in an exceptionally benign scenario, yesterday’s central forecast is for inflation to remain almost exactly at its 2 per cent target rate throughout the next two years with unchanged interest rates.

This implied no need for action by the Bank’s Monetary Policy Committee (MPC), although Mr King conceded that this forecast was likely to be blown off course by unexpected events.

Projected inflation is a little higher than the Bank saw in November, failing to drop below the target, thanks to the persistence of high energy prices.

The Bank’s upbeat view of future growth, meanwhile, confounded City suggestions that it would scale its forecasts back. Its optimism is driven by the MPC’s expectation that, after reviving from a “shortlived” slowdown in the first half of last year, consumer spending will continue to motor along at about its average long-term growth rate.

While the Bank acknowledge “downside risks” of weaker growth, Mr King said that a series of positive factors, including big gains in shares prices and a recovery in the housing market, were helping to underpin spending.

The Bank also expects business investment to “recover slowly” and the economy’s export trade to be less of a drag on its expansion than in recent times. Mr King said that a potential rebalancing of the economy, away from the consumer and towards exports and investment, had not come about as hoped “but there was not a lot we can do to stimulate it”.

The Governor was scornful of City economists’ suggestions before yesterday’s report that the MPC would be forced to cut its growth projections. He highlighted recent robust surveys of business conditions and official figures showing growth recovering in the final quarter of last year.

Yet a number of analysts argued that after the worrying news of a further rise in unemployment at the end of last year, the Bank’s view may be too rosy. Although the rise in joblessness reflects the lagged impact of last year’s slowdown, some economists said that it could dent consumer demand.

The unemployment claimant count edged down 2,000 in January, however, its first fall in a year, perhaps suggesting that the worst of the rise in numbers out of work is over.

Worries were fuelled by the drop in the employment total and by a second steep quarterly rise in the Labour Force Survey gauge of unemployment, which rose 108,000 in the three months to the end of December.

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