The Long and Winding Road to Recovery

Posted on 15 November, 2012 by Neil Bird

The road to economic recovery is going to be a long and winding one according to the Bank of England. Governor Sir Mervyn King made the prediction as he scaled down growth forecasts and conceded that inflation is likely to remain higher than expected.

Sir Mervyn King

Sir Mervyn said that continuing economic fragility means that earlier forecasts of 2 per cent were unachievable and, instead, we should not expect growth to surpass 1 per cent. He also said that inflation was unlikely to fall to the government’s target of 2 per cent until the middle of next year. However, he said he had not lost faith in quantitative easing as a means of generating growth.

The Bank’s quarterly report said that UK growth will remain low due to continuing economic problems and the domestic impact of the Eurozone crisis. It predicted that recovery would be ‘slow and protracted’ and that output would remain at pre-recession levels for the next three years.

The Governor warned that any growth over this period will be prone to fluctuation and we could even see a fall when the next figures are released.

He said; “Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in Q4 (October-December) as the boost from the Olympics in the summer is reversed. Indeed, output may shrink a little this quarter.”

While stating that there are limits to stimulating private sector demand Sir Mervyn did not rule out further asset purchases to stimulate growth.




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