Bank says big risk of inflation undershooting target

LONDON (Reuters) - The Bank of England said on Thursday Britain's economic outlook had deteriorated markedly and inflation risks had shifted substantially to the downside, as it cut interests to 3 percent from 4.5 percent.

Not one economist polled by Reuters had predicted a rate cut of that magnitude, with most expecting a 50 basis point reduction.

"There has been a very marked deterioration in the outlook for economic activity at home and abroad," the Bank said in a statement accompanying the decision.

"Since mid-September, the global banking system has experienced its most serious disruption for almost a century."

The Bank had revised down its forecast for inflation which "at prevailing market interest rates, contains a substantial risk of undershooting the inflation target."

Inflation is currently running at 5.2 percent, well above the BoE's 2 percent target, but is expected to fall sharply as the economy weakens and commodity prices fall.