Here comes TRIPLE dip: Bank of England slashes growth forecasts and warns economy will 'zig-zag'

 

The Bank of England has slashed its growth forecasts and hiked its inflation expectations, as Sir Mervyn King unveiled the gloomiest set of medium-term economic projections for the UK since the central bank won independence in 1997.

The Bank’s Governor also warned that the economy, which emerged strongly from recession earlier this year, may already be contracting again, raising the prospect of a “triple dip” recession. “Output may shrink a little this quarter” he said at the Bank’s regular press conference.

The Bank’s latest Inflation Report shows that the Bank expects growth to remain well below its historic trend rate over the next three years. It now does not see the UK regaining its pre-2008 level of output until 2015. Inflation is expected by the Bank to remain above 2 per cent throughout next year and not to fall to the official target level until 2014.

The Governor said that the stark deterioration was a consequence of the ongoing eurozone crisis, which continues to make UK banks reluctant to lend, and unexpected hikes in world energy and food prices. “We have decided the chances of a rapid recovery are a good deal less than we thought” he said. The eurozone is expected to report this morning that the single currency area has returned to recession after contracting again in the third quarter of the year.

The Bank of England’s Monetary Policy Committee has purchased £375bn of government bonds to support the domestic economy. It has also established an £80bn Funding for Lending Scheme, which is designed to increase the flow of bank credit to British households and businesses.

The Bank paused its bond buying programme, known as Quantitative Easing, this month, but the Governor said that more could follow. However, he also stressed that there are “limits” to what monetary stimulus can achieve in an economy such as the UK, which is attempting to rebalance from consumption-led growth to investment-led growth. “It may be unreasonable to expect anything other than a slow and protracted recovery” he said.

The labour market has been one of the few bright spots in the UK economy in recent years, with unemployment peaking at a considerably lower rate than in past recessions. But new statistics from the Office for National Statistics yesterday suggested that even this light could be fading. The ONS reported that total employment grew by 100,000 in the third quarter of the year, a slower rate than in the previous quarter. And a monthly breakdown of the labour market figures shows that unemployment rose by 50,000 in September.

The UK economy grew by 1 per cent in the third quarter of 2012, pulling the UK out of its double dip recession. But this strong figure was flattered by one-off factors, including Olympic ticket sales and activity shifted from the previous quarter when there was an extra bank holiday. If the economy was to register a contraction in the final quarter of this year and negative output in the first three months of 2013 the UK would be back in recession for the third time since 2008.

The Governor brushed aside suggestions that the Bank’s independence had been eroded by the recent decision of the Treasury to take around £37bn in cash from the Bank’s balance sheet, a byproduct of Quantitative Easing, and use it to reduce the Government’s borrowing levels. “To be honest I think it’s a lot of fuss about nothing” the Governor said, stressing that the Treasury had committed to transfer back the funds when the Bank comes to unwind QE.

The shadow chancellor, Ed Balls, said: “This sobering report shows why David Cameron and George Osborne’s deeply complacent approach to the economy is so misplaced. Their failing policies have seen two years of almost no growth and the Bank of England is now forecasting lower growth and higher inflation than just a few months ago.”

The Bank’s growth forecast for 2013 is around 1.2 per cent, down from the 1.8 per cent it expected in August. The annual CPI inflation rate in October rose to 2.7 per cent, pushed up by the lifting of the cap on university tuition fees and higher food prices. Price rises by energy companies are expected to push the cost of living higher in the coming months.

News
A Brazilian wandering spider
news

World's most lethal spider found under a bunch of bananas

News
people
Arts and Entertainment
Tim Wonnacott dancing the pasadoble
TVStrictly Come Dancing The Result
Sport
Mario Balotelli pictured in the win over QPR
footballInternet reacts to miss shocker for Liverpool striker
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Russell Brand labelled 'left-wing commie scum' by Fox News
TV
News
<p>Jonathan Ross</p>
<p>Jonathan Ross (or Wossy, as he’s affectionately known) has been on television and radio for an extraordinarily long time, working on a seat in the pantheon of British presenters. Hosting Friday Night with Jonathan Ross for nine years, Ross has been in everything from the video game Fable to Phineas and Ferb. So it’s probably not so surprising that Ross studied at Southampton College of Art (since rebranded Southampton Solent), a university known nowadays for its media production courses.</p>
<p>However, after leaving Solent, Ross studied History at the School of Slavonic and East European Studies, now part of the UCL, a move that was somewhat out of keeping with the rest of his career. Ross was made a fellow of the school in 2006 in recognition of his services to broadcasting.</p>
TV

Rumours that the star wants to move on to pastures new

News
i100
Arts and Entertainment
BBC's Antiques Roadshow uncovers a TIE fighter pilot helmet from the 1977 Star Wars film, valuing it at £50,000
TV

TV presenter Fiona Bruce seemed a bit startled by the find during the filming of Antiques Roadshow

News
people

Comedian says he 'never laughed as hard as I have writing with Rik'

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

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

IT Operations Manager - London - £55,000

£50000 - £55000 per annum + bonus + benefits: Ashdown Group: IT Relationship M...

Banking Solicitor NQ+

Highly Attractive Salary : Austen Lloyd: NOTTINGHAM - BRILLIANT FIRM - You wil...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past