Sir Mervyn King forecast growth up 1.2 per cent rather than 0.9 per cent Inflation will be a 'little weaker' at 2.9 per cent instead of 3.1 per cent But inflation likely to remain above Bank's 2 per cent target for two years Upbeat: Sir Mervyn King announced that 'a modest and sustained recovery' is on its way Britain's economic recovery 'is in sight' following the worst downturn since the depression of the 1930s, the Bank of England Governor said yesterday. In a welcome break from six years of persistent gloom, Sir Mervyn King announced that 'a modest and sustained recovery' is on its way. He forecast that growth will be 'a little stronger', up 1.2 per cent this year rather than the previously-forecast 0.9 per cent. And inflation will be 'a little weaker' at 2.9 per cent by the end of the year, rather than 3.1 per cent. He cautioned, however, that inflation is likely to remain above the Bank's target of 2 per cent for at least the next two years. Sir Mervyn, who retires next month and was presenting his 82nd and final Inflation Report, said it was 'the first time' he had been able to make such an upbeat overall prediction 'since before the financial crisis'. He said: 'This hasn't been a typical recession and it won't be a typical recovery. Nevertheless, a recovery is in sight. He also said that the interest rate of 0.5 per cent is likely to stay at its historic low for another four years. Last night George Osborne welcomed the improved economic outlook. In a speech in London to the CBI, Britain's biggest business lobby group, the Chancellor dismissed critics of his austerity programme who are calling for borrowing to be increased. He said: 'Now is not the time to lose our nerve. Let's not listen to those who would take us back to square one. Let's carry on doing what is right for Britain. Let's see this through.' Sir Mervyn's remarks on interest rates represent good news for homeowners with a mortgage, but will be a blow for pensioners who depend on savings. In March 2009, the Bank cut the base rate to 0.5 per cent, but the inflation report revealed the market expects it to stay at this level until at least 2016. Welcome break: Sir Mervyn, who retired from the Bank next month, was presenting his final Inflation Report Sir Mervyn said: 'Markets expect bank rate to remain below 1 per cent for a further four years.' Asked if he felt sympathy for the harsh impact on pensioners, Sir Mervyn, who has just turned 65, said he has 'great sympathy'. Unlike the vast majority of pensioners, he has a pension pot worth around £5.4million and can look forward to a pension worth around £200,000 a year. Sir Mervyn said he is 'certainly not happy' that the base rate will continue to be stuck at such a low level, which is the longest period of frozen rates in peacetime. Yesterday's report reveals how the financial crisis has 'led some pensioners to seek work because of the fall in their savings income'. A record of nearly one million people are still working despite being 65 and over. 'Let's see this through': Last night Chancellor George Osborne welcomed the improved economic outlook Simon Rose, from campaign group Save our Savers, said millions of pensioners and other savers had been clinging to the prospect of higher rates as 'the light at the end of a really dark tunnel'. Inflation remaining high despite the downward revision will add to the pressure on pensioners. It has been above target since November 2009. Stephen Gifford, director of economics at the CBI, said the inflation report 'supports our view that the UK is on a rocky road to recovery'. However, workers are being hit by the worst pay rises for more than a decade. The average worker is getting a rise of just 0.8 per cent, while inflation is 2.8 per cent. The 0.8 per cent wage growth for the quarter from January to March is the lowest recorded by the Office for National Statistics under its current method of calculation, which was introduced in 2001. Chris Williamson, chief economist at the consultancy Markit, said: 'It suggests that widespread job insecurity is discouraging people from asking for pay rises.' A record 13.8million women are working. Over the past year an extra 240,000 women have got a job, many only because the family finances are being squeezed. As a result, the number of women staying at home to look after their children has dropped to close to an all-time low of two million. The average worker is earning the same as they were a decade ago, according to independent think-tank the Resolution Foundation. It said the average salary, including both full and part-time workers, is £23,088. In 2003, a worker was earning £23,000, if the figure is adjusted for inflation. Overall, the ONS said employment, which had been rising strongly in recent months, has started to drop. It is down 43,000 between January and March to a total workforce of 29.7million. Unemployment is rising, increasing by 15,000 during the same period to a total of 2.5million. Ministers said there are more job vacancies today - 503,000 - than there have been at any point since the financial crisis began in 2008.