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."

Start your day with The Independent, sign up for daily news emails
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own