Mervyn A. King, in his last scheduled news conference before retiring from the central bank in July, said the economy would grow faster and consumer prices would increase slower than anticipated in February.

Britain’s economy could grow by 0.5 percent this quarter after growing 0.3 percent in the first three months of this year, according to the Bank of England. Inflation, meanwhile, could peak at 3.1 percent toward the end of the summer, a lower level than expected earlier.

“There is a welcome change in the economic outlook,” Mr. King said. The “projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago. That is the first time I have been able to say that since before the financial crisis.”

The improved outlook is backed by a string of economic data from the last two months. The value of British homes rose to the highest level in almost three years in April, according to the mortgage lender Halifax. An index measuring business confidence also increased, the services sector grew more than some economists expected in April and industrial output was stronger.

But Mr. King also said that it was “no time to be complacent” because inflation stubbornly remains above the central bank’s target of 2 percent and the labor market is still weak. Threats to a sustained recovery continue to come from outside Britain’s borders, especially from the euro zone, its largest single export market, Mr. King said. The euro zone, of which Britain is not a part, on Wednesday reported its sixth consecutive quarter of economic decline.

Some economists maintained that Mr. King’s outlook was too optimistic. David Kern, chief economist at the British Chambers of Commerce, a business lobby group, forecast that the speed of the recovery would be “somewhat slower than the governor indicated” and that “the grim euro zone data also shows that our exporters will face obstacles over the year ahead.”

Britain has been struggling to generate growth because concern about unemployment and rising consumer prices has cut into the disposable income of consumers. Banks have also been reluctant to lend, and businesses have held back on hiring staff and other investments. The government’s austerity program, which includes a reduction of public pensions, benefits and jobs, has also depressed spending and investment.

Mr. King, who is being replaced in six weeks by Mark Carney of the Bank of Canada, said Wednesday that the Bank of England would have to continue to strike a balance by trying to bring down inflation without hurting the economy. “Attempting to return inflation to target too rapidly would result in even slower growth and higher unemployment,” he said.

Unemployment rose in the first three months of this year and wage increases dropped, according to figures released Wednesday by the Office for National Statistics. Unemployment as calculated by the International Labor Organization rose 15,000 to 2.52 million, for a rate of 7.8 percent.

“Given the challenging economic conditions at the end of last year, it’s unsurprising that we’re now seeing fewer people in work,” said Neil Carberry, director for employment and skills at the Confederation of British Industry, an employers’ group. “What’s encouraging, however, is that economic conditions seem to be improving and that full-time jobs are still being created.

To help the economy recover, the Bank of England left its benchmark interest rate unchanged at 0.5 percent earlier this month. Some economists expect the rate to remain at this record low level for at least another year. Following the slight improvement in the economic outlook, members of the Bank of England’s rate-setting committee could decide to hold off adding economic stimulus by expanding the bank’s bond-purchasing program.

“Recent signs of improvement in the U.K. economy and the modest upward revisions to the G.D.P. growth forecasts suggest that there is perhaps less need for further stimulus by the Bank of England,” said Howard Archer, an economist at IHS Global Insight.

Stephen Castle contributed reporting.

Article source: http://www.nytimes.com/2013/05/16/business/economy/bank-of-england-raises-outlook-for-economy.html?partner=rss&emc=rss