Bank downgrades UK growth outlook

The UK economy faces a “choppy
recovery” over the next two years, the governor of the Bank of England,
Mervyn King, has warned.

His comments came as the Bank
lowered its economic growth forecast and said inflation would stay higher for
longer than previously forecast.

The Bank now expects the economy to
grow by less than 3 per cent in 2011, down from its previous forecast of nearer
3.5 per cent.

It added that a lack of bank
lending would limit economic growth.

“It will take many years
before bank balance sheets and fiscal positions return to anything like
normal,” said Mr King.

“In the meantime they will act
as headwinds to the recovery.”

Mr King also warned that following
an “unprecedented” period the UK economy faced a difficult
rebalancing “away from private and public consumption and towards net
exports”, and that this could also hit economic growth.

He added that there were some
factors helping to keep the economy expanding, most notably the continuing
economic stimulus measures and the fall in value of the pound.

However, Mr King said it would be
“several years” before the economy adjusts “back to anything we
can call remotely normal”.

The Bank of England’s Quarterly
Inflation Report forecasts a range of different outcomes for GDP growth, which
it publishes in a graph, with the darker central projection considered the most

The central projection in the
latest graph shows that the Bank predicts growth somewhere between 2.5 per cent
and 3 per cent next year, below its previous forecast, but above the Office for
Budget Responsibility’s current estimate of 2.3 per cent.

The Bank’s report came after the
latest official unemployment data showed a further fall in the jobless total.

The number of people unemployed in
the UK fell by 49,000 to 2.46 million in the three months to June, according to
the Office for National Statistics.

The Bank said the main factor
behind its prediction that inflation would remain higher than previously
forecast was the government’s decision to raise VAT to 20 per cent from 17.5
per cent at the start of next year.


Bank of England governor Meryvn King denied the downgrade is a result of the government’s austerity plan.
Photo: File

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