Chancellor backs Sir Mervyn's report on the economy
8 August 2012 Last updated at 17:31 BST
The Bank of England has reduced its growth forecast - warning that the economy will grind to a halt this year.
In his quarterly inflation report, the bank's governor, Sir Mervyn King, said there would be virtually zero growth in 2012 as a whole.
However, he revealed that inflation was now expected to hit the Government's 2% target towards the end of this year.
The Chancellor of the Exchequer, George Osborne, broadly agreed with Sir Mervyn that the economy was healing but that it was a "slow and difficult process".