Bank of England: UK economy heading 'back to normal'

The Bank of England has upgraded its growth forecasts for next year, saying the economy "has started to head back towards normal".

Its latest inflation report predicts growth of 2.9% next year, up from its 2.7% forecast three months ago.

Governor Mark Carney said the economy had "edged closer" to the point when interest rates would need to rise, but indicated this remained some way off.

The comments led to a fall in the value of the pound against other currencies.

Mr Carney said any increases in interest rates would be "gradual" and that rates "may stay at historically low levels for some time".

Some analysts had thought the recent strength of the UK economy might force the Bank to raise rates before the second quarter of next year, but this now appears less likely.

Following Mr Carney's comments the pound was down 0.3% against the dollar at $1.6778 and dropped 0.35% against the euro to 1.2236 euros.