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16/11/2011
Central Bank Warns Of Double Dip
The Bank of England is warning of an increased threat of a double-dip recession next year.
The bank said there was a greater chance of the economy contracting in the first three quarters of 2012 compared to previous forecasts, noting the eurozone crisis as the biggest threat to the UK.
In it's overview of yesterday's rising inflation rate, a spokesperson for the bank said: "The prospects for the UK economy have worsened. Global demand slowed. And concerns about the solvency of several euro-area governments intensified, increasing strains in banking and some sovereign funding markets. Household and business confidence fell, both at home and abroad."
The spokesman said these factors, along with the fiscal consolidation and squeeze on households’ real incomes, were likely to "weigh heavily" on UK growth in the near term.
The bank said outlook for output growth was "unusually uncertain", reflecting the exposure of the UK economy to developments in the euro area.
The Bank slashed its growth estimate to no more than 1% in both 2011 and 2012 from previous forecasts of around 1.5% and 2.2%.
It recommended a "credible and effective" policy response in the euro area to reduce uncertainty and support UK growth, but added that a lack of agreement posed "the single biggest risk to the domestic recovery".
On Tuesday, the bank's Chief Executive Mervyn King wrote to the Chancellor George Osborne about the continuing high rate of inflation of 5%.
Mr King said the current high level was because of the high standard rate of VAT introduced by the Government earlier this year, along with previous steep increases in import and energy prices, including recent domestic utility price rises.
"In the absence of those temporary factors, it is likely that inflation would have been below the 2% target," Mr King Claimed.
In the letter, Mr King added that inflation would fall back sharply in the next six months or so, and continue falling thereafter to around target by the end of next year.
(DW)
The bank said there was a greater chance of the economy contracting in the first three quarters of 2012 compared to previous forecasts, noting the eurozone crisis as the biggest threat to the UK.
In it's overview of yesterday's rising inflation rate, a spokesperson for the bank said: "The prospects for the UK economy have worsened. Global demand slowed. And concerns about the solvency of several euro-area governments intensified, increasing strains in banking and some sovereign funding markets. Household and business confidence fell, both at home and abroad."
The spokesman said these factors, along with the fiscal consolidation and squeeze on households’ real incomes, were likely to "weigh heavily" on UK growth in the near term.
The bank said outlook for output growth was "unusually uncertain", reflecting the exposure of the UK economy to developments in the euro area.
The Bank slashed its growth estimate to no more than 1% in both 2011 and 2012 from previous forecasts of around 1.5% and 2.2%.
It recommended a "credible and effective" policy response in the euro area to reduce uncertainty and support UK growth, but added that a lack of agreement posed "the single biggest risk to the domestic recovery".
On Tuesday, the bank's Chief Executive Mervyn King wrote to the Chancellor George Osborne about the continuing high rate of inflation of 5%.
Mr King said the current high level was because of the high standard rate of VAT introduced by the Government earlier this year, along with previous steep increases in import and energy prices, including recent domestic utility price rises.
"In the absence of those temporary factors, it is likely that inflation would have been below the 2% target," Mr King Claimed.
In the letter, Mr King added that inflation would fall back sharply in the next six months or so, and continue falling thereafter to around target by the end of next year.
(DW)
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