Bank of England Forecasts Recovery to be Slower than Expected

Wed, 11 Aug 2010

Economic expansion is going to peak at 3 per cent in 2011, weaker than the 3.6 per cent the Bank of England was anticipating three months ago.

An inflation report has also warned that inflation will remain higher than its 2 per cent target for much of next year.

Mervyn King, the Bank's Governor, stated that a UK recovery is likely to continue, however, with the overall outlook being weaker.

Bank of England poised to reduce growth forecasts in Inflation.

The twin predictions underline the dilemma facing the Bank's Monetary Policy Committee (MPC) over the future course of interest rates.

There is an emerging split on the MPC over whether or not the real fight now is against inflation, which has remained above the bank's target for much of the last two years.

Today's forecasts reflect the greater threat of slowdown in Europe and America, the UK's two biggest trading partners, as well as the austerity measures announced in the Coalition government Budget.

In spite of the Bank's official forecasts pointing to an acceleration in growth in 2011, Mr King has taken each public opportunity since the financial crisis to clarify that a recovery is going to be long and slow.

The Bank's decision to maintain interest rates at a record low of 0.5pc for the last 18 months has been credited with limiting the scale of repossessions and encouraging what business lending from banks there has been.

However, experts have warned that should inflation remain stubbornly above the 3 per cent level; it stood at 3.2pc in June, pressure is going to grow on the MPC's nine members to increase interest rates, or risk losing the confidence of financial markets .

Mr King has indicated his intention to maintain interest rates at a low level as the Government introduces cuts in public spending, starting next year.

A Nationwide Building Society survey illustrated today that a majority of UK consumers are more frighthened about the economic outlook than a year ago.

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