Economic activity will be “broadly flat” until the middle of next year, the Bank of England warned in a gloomy inflation report which signalled that its Monetary Policy Committee will announce more quantitative easing in the coming months.

Sir Mervyn King, the governor, said on Wednesday that “inflation is more likely to be below than above the target” over the next two years, implying that the Bank believes more asset purchases will be necessary. The report’s central forecast shows inflation falling to far below the Bank’s 2 per cent inflation target towards the end of 2013, the forecast horizon the MPC considers when deciding whether or not to conduct further quantitative easing.

The Bank is due to finish buying the ￡75bn-worth of asset purchases that the MPC announced in October by February. Analysts had already expected more quantitative easing to be announced at that point. But a further round of asset purchases could now be brought forward.