14 November 2012 Last updated at 07:19 ET
Bank of England cuts UK growth forecast for 2013
Bank of England cuts UK growth forecast for 2013
The Bank of England has cut its growth forecast to 1%, and said recovery will be "slow and protracted" with inflation staying higher than expected.
Continuing global economic fragility meant the previous forecast of about 2% was unlikely to be achieved, it said.
Bank governor Sir Mervyn King said he had not "lost faith" in quantitative easing as a way to stimulate growth.
He hailed the improving jobs figures, but said it was not easy to square them with the picture of weak growth.
The quarterly report said inflation would not now fall towards the government's 2% target until mid-2013, rather than in the first half of next year, as previously thought.
The report said the UK could be stuck in a "low-growth" environment, with economic problems in the eurozone and the rest of world continuing to have an impact domestically. Output would remain below pre-financial crisis levels for the next three years.
The Bank's report came on the day that the Office for National Statistics said that the UK unemployment rate fell to 7.8% in the July-September quarter, down from 8% in the previous three months.
However, the claimant count went up in September, leading some economists to suggest that the recent resilience of the jobs market was beginning to weaken.
Sir Mervyn told a news conference: "I don't think one would say that the data released this morning were weak. There are some signs in the claimant count of a small increase, that maybe it's beginning to move, but there were still falls in unemployment, a rise in employment [and] a big increase in total hours worked.
'Overly optimistic'"This is still a pretty strong labour market and, of course, it is not easy to reconcile that with the picture of underlying growth being still so weak," he said.
He warned that growth from quarter to quarter would continue to fluctuate. In the April-June quarter growth was depressed by one-off factors such as the unseasonably bad weather and had given a misleadingly weak picture of the economy.
Similarly, growth in the July-September period was boosted by one-off factors including the Olympics and gave "an overly optimistic impression of the underlying trend," he said.
"Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in Q4 [between October and December] as the boost from the Olympics in the summer is reversed. Indeed, output may shrink a little this quarter," he said.
The Bank has previously predicted that inflation might fall towards the government's 2% target in the first half of next year.
But it now expects inflation to stay higher for longer. "We face the rather unappealing combination of a subdued recovery, with inflation remaining above target for a while," Sir Mervyn said.
He said that the Bank had not ruled out further asset purchases to stimulate growth. He said that with the global economy still struggling, "there are limits to the ability of domestic policy to stimulate private sector demand as the economy adjusts to a new equilibrium".
"But the [Monetary Policy] Committee has not lost faith in asset purchases as a policy instrument, nor has it concluded that there will be no more purchases."
Source : bbc[dot]co[dot]uk
No comments: