Bank of England warns Jubilee will plunge UK deeper into recession


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The Independent Online

Indulging in a four-day weekend to celebrate the Queen's Diamond Jubilee next month will push Britain deeper into recession, the Bank of England has warned.

As if deepening concerns about the euro's uncertain future were not troublesome enough for the faltering economy, the Bank believes that workers taking lengthy holidays and businesses extending closures will encourage a fall of 0.5 per cent in GDP in the second quarter of the year.

The Bank's chief economist, Spencer Dale, said the Jubilee would inflict more damage on the economy than last year's Royal Wedding, which to led to a 0.4 per cent fall in output.

"The Jubilee will have a slightly bigger effect in part because it's happening in June rather than April, so the ability for companies to make up that output within the quarter will be that much less," he explained.

The Bank's Governor, Sir Mervyn King, also warned that the uncertainty generated by the eurozone crisis would continue to hamper the UK recovery by weakening the banking sector.

"Underlying concerns about balance sheets, especially in the financial sector with its exposure to the euro area, mean that the path of recovery is likely to be slow and uncertain," he said.

"We have been through a big global financial crisis; the biggest downturn in world output since the 1930s; the biggest banking crisis in this country's history; the biggest fiscal deficit in our peacetime history – and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution."

He added: "The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2 per cent strikes me as wholly unrealistic."

The gloomy prediction came on the day the Bank slashed its 2012 growth forecasts for the UK economy, raised its near-term inflation outlook and issued a warning about the potential economic damage the eurozone sovereign debt crisis could inflict.

In its quarterly inflation report yesterday, the Bank's Monetary Policy Committee lowered its estimate of economic growth over this year from 1.2 per cent to 0.8 per cent, bringing it slightly closer to the consensus of private-sector economists. The MPC also forecast that consumer price inflation will remain well above the Bank's 2 per cent target until the middle of next year.