For the first time since the U.S. subprime mortgage crisis set off a global liquidity crisis earlier this year, the European Commission raised its forecast for inflation in 2007 while cutting its growth forecast for the EU. The Commission now expects headline inflation of 2.0% for 2007, right on the border of the European Central Bank's safety zone of maximum inflation of 2%. Meanwhile, the liquidity crunch that has caused banks to cease lending is expected to pull overall growth in the 13 countries that make up the EU to just 2.5%. Both revisions are down one tenth of a percent, from previous forecasts of 1.9% and 2.6% respectively.
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