FTSE flat as BoE juggles UK growth with inflation

By Rebekah Curtis

LONDON, May 14 (Reuters) - Britain's leading shares drifted by midday on Wednesday, as miners powered on but investors in financials fretted over the Bank of England's (BoE) intensifying battle to shore up the UK economy while reining in inflation.

Banks fell as the BoE said in a report that British inflation would shoot up over the next year and remain above the 2 percent target in two years if rates fall by half a percentage point as markets expect.

"There are a lot of strains within the system," said Graham Secker, UK equity strategist at Morgan Stanley.

"If the bank of England doesn't cut rates further from here, the risk of the housing downturn and the consumer downturn is more substantial."

British house prices are likely to fall 5 percent this year, a Reuters poll of economists showed, and many believe they could tumble twice that as inflationary pressures limit rate cut hopes.

"Our view is that we're now entering a real economy problem as opposed to a financial crisis type issue," Secker added.

"Potentially it is pretty serious."

By 1050 GMT the FTSE 100 .FTSE was up 4.5 points, or 0.1 percent at 6,216.4 points, as the wider European stock market edged up.