Bank cuts UK's 2011 economic growth forecast to 1.5 per cent
The Bank of England bowed to the inevitable yesterday and downgraded its 2011 growth forecast for the British economy to 1.5 per cent.
As recently as May, the Bank had projected growth of 1.8 per cent. This is the fifth downgrade of its estimates for growth in 2011 since the Coalition Government was formed last June.
Sir Mervyn King, the Governor of the Bank of England, also warned that "headwinds to world and domestic growth... are becoming stronger by the day". The forecast for 2012 was downgraded from around 2.5 per cent to closer to 2 per cent.
Commenting on the UK riots, Sir Mervyn said he was "shocked and appalled". But to try to quash the idea that they are a response to the Coalition's austerity programme, he pointed out that in the past year "the private sector has created over four times more jobs than have been shed from the public sector".
The outlook on inflation in the Bank's latest report was also bleak. According to Sir Mervyn there is a "good chance" that inflation will hit 5 per cent this year, mainly thanks to rising gas and electricity bills, although the Governor stressed that the Bank still expects prices to fall back sharply in 2012, and to return to target around the end of next year.
Among the primary growth headwinds identified by Sir Mervyn was the eurozone debt crisis. He said the European Central Bank had "gone to the outer limit of what a central bank can do" and stressed that any further action must be carried out by European governments themselves.
He said the European Central Bank this week began to buy Italian and Spanish sovereign bonds to ease market fears about default by those governments, but parliaments across the eurozone have not yet ratified last month's emergency agreement to beef up the powers of the European Financial Stability Facility.
"You cannot expect a central bank... to be a substitute for the inability to deal with the fiscal problems facing the euro area. That is a problem for governments, not central banks," he said.
He declined to say if the Bank of England was considering another round of quantitative easing – purchases of UK sovereign bonds – in order to prop up the economy. But he warned "there is a limit to what UK monetary policy can do when large, real adjustments are required".
Sir Mervyn continued to back the Coalition's deficit-reduction strategy saying: "We have a credible medium-term fiscal plan, which many countries do not." He also pointed to the depreciation of sterling as something that should help to assist the recovery by making British exports more competitively priced on world markets.
The Treasury said the new report confirms that the UK economy is continuing to grow and to create jobs.
But Labour's shadow Treasury minister, Chris Leslie, said: "Far from being a safe haven, as our Chancellor complacently claims, last year's recovery in Britain has already been choked off by tax rises and spending cuts which go too far and too fast."
- 1 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 2 Watch what happened when food critics were unknowingly served McDonald's
- 3 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
- 4 Queen's first tweet: Reply telling Her Majesty to 'f*** off' broadcast on BBC News
- 5 #AskNigelFarage: Twitter starts hilarious Q&A for Ukip leader
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Tony Blair 'says Ed Miliband will lose 2015 general election'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Putin: The US is to blame for almost all the world's major conflicts
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...