THE economy will pick up a "little later" than expected with a slightly lower growth during 2004 than previously forecast, the Bank of England said.

In its quarterly inflation report, the Bank stuck by its earlier forecast, saying inflation was set to slip below Chancellor Gordon Brown's 2.5 per cent projection around the end of this year and run just below target through 2004.

It added that inflation was projected to edge up to around the target rate over the remainder of the forecast period - which runs to 2005 - as the depreciation of the pound earlier this year continues to feed through.

The Bank said gross domestic product (GDP) growth was provisionally estimated to have increased by 0.3 per cent in the second quarter of 2003, below the rate expected at the time of its last inflation report in May.

That report projected GDP growth of about 2.25 per cent this year and 2.75 per cent next year, with inflation based on the Retail Price Index hugging the 2.5 per cent target.

Yesterday's inflation report is likely to strengthen the view among economists that the Bank's Monetary Policy Committee will keep interest rates at or above their current 48-year low of 3.5 per cent.