King-sized good news on economy

Bank's Sir Mervyn will bow out with a report of lower inflation and higher UK growth

Sir Mervyn King will mark the end of his stewardship of the Bank of England this week with, finally, some uplifting news for the British economy.

The Governor has chaired every Inflation Report press conference since Threadneedle Street began publishing its forecasts back in 1993, when he was the central bank's chief economist.

While the consumer prices index remains well above the Bank's 2 per cent target, at 2.8 per cent, his 82nd and last inflation report before handing over to the Canadian Mark Carney in July is likely to show the BoE lowering its forecasts for the cost of living from February. This is due to lower crude oil costs.

The report should also signal a stronger growth profile for the economy after a better than expected 0.3 per cent advance in the first three months of 2013.

Berenberg's chief UK economist, Rob Wood, said: "The forecasts should be heading in the right direction for once – inflation down, growth up. This is going to be a good news inflation report, which makes a pleasant change to the last five years of misery."

February's forecasts pencilled in average inflation of 3 per cent this year, peaking at 3.2 per cent in the third quarter, as Sir Mervyn blamed government "own goals", such as hikes in university tuition fees and domestic energy bills, for keeping the cost of living high.

But the tumbling cost of crude oil – down 12 per cent from its February highs close to $120 a barrel – and a round of slashed petrol prices from supermarkets have eased the pressure on household budgets.

Growth, expected to be less than 1 per cent this year, may also be revised higher as the Monetary Policy Committee takes account of changes to the Funding for Lending scheme to accelerate the rate of loans to small business.

Sir Mervyn, however, remains bearish on the economy's prospects and is one of three members of the MPC calling for an extra £25bn in quantitative easing.

George Buckley, chief UK economist at Deutsche Bank, said: "We expect he will continue to vote for more QE until he leaves at the end of next month."

This month's report will show the first inklings of change at Threadneedle Street as the Bank publishes the numbers behind its forecast charts along with its predictions for the first time. This is in response to the former US Federal Reserve statistics director David Stockton's review of the Bank's forecasting performance.

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