UK growth downgrade means gloomy times until 2015
Bank of England says UK output unlikely to return to 2008 peak until general election year
THE Bank of England has downgraded its growth forecast for the UK economy, saying it will expand by just one per cent during 2013. The Bank had previously predicted growth of around two per cent next year.
In a gloomy quarterly inflation report, Bank of England Governor Mervyn King said the UK faces the "rather unappealing combination of a subdued recovery, with inflation remaining above target for a while".
The Bank had previously predicted that inflation would fall back to the target rate of 2 per cent in the first half of 2013, but now believes that it might take until the second half of next year for this to be achieved. He noted that the huge increase in university tuition fees alone had added 0.3 per cent to inflation.
Despite the high rate of inflation, King retains his faith in quantitative easing and low interest rates as means of boosting the economy. The fact that interest rates have not been changed for a long time does not mean that low interest rates are ineffective, he said.
Analysts agree that further quantitative easing - ‘printing money’ - is now unlikely for the foreseeable future.
Worryingly for the coalition government, King now believes the economy will remain below its 2008 peak until late in 2015, saying "growth is more likely to be below than above its historical average rate over the entire forecast period".
The Guardian’s Larry Elliott notes that this is “significant politically” because it suggests the economy will be weak in the run-up to the next general election in 2015.
The weak economic outlook appears to be having an effect on unemployment figures, too. The number of people in work has been increasing in recent months, but Office for National Statistics figures released today show that the rate of increase is now at its lowest in nine months and the number of people on the dole rose at its fastest rate in more than a year.
Chris Williamson, chief economist at Markit, told The Times: “The official labour market data show that employment continued to rise over the summer, but also suggest that the hiring trend is weakening.
He said the growing uncertainty about the economic outlook was causing increasing numbers of firms to “retrench and focus on cost-cutting”.