UK growth forecast cut to zero but King tries to be cheery
Bank chief evokes Olympic spirit but analyst compares UK economy to marathon runner in a diving suit
THE BANK OF ENGLAND has revised its estimate of UK economic growth for 2012 down to zero. The gloomy estimate, revealed in the Bank's quarterly inflation report issued this morning, compares to predictions last year that the economy would grow by two per cent in 2012 - and an estimate of 0.8 per cent just three months ago.
UK growth in the medium term was cut from 2.8 per cent to 2.1 per cent. As Sky News reports, this reflects concerns that the financial crisis may drag on for longer than previously thought.
Announcing the bad news, Bank of England governor Mervyn King attempt to lighten the mood by referring to Team GB's stellar performance in the Olympic Games.
"Unlike the Olympians who have thrilled us over the past fortnight, our economy has not yet reached full fitness," said King. "But it is slowly healing. Many of the conditions necessary for a recovery are in place, and the MPC [the Monetary Policy Committee which settles interest rates] will continue to do all it can to bring about that recovery.
"As I have said many times, the recovery and rebalancing of our economy will be a long, slow process. It is to our Olympic team that we should look for inspiration. They have shown us the importance of total commitment when trying to achieve a goal that may lie some years ahead".
King dismissed suggestions that the already historically low interest rate of 0.5 per cent ought to be reduced to 0.25 per cent, but held out the prospect of some relief for consumers, forecasting further falls in inflation, which is now 2.4 per cent - down from a high of 5.2 per cent last year.
Ranvir Singh, CEO of market analysts RANsquawk, riffed on King's Olympic theme, saying: "The economy is currently hobbling round a marathon course in a diving suit. No amount of Olympic feel-good factor can hide the fact that the recovery is going to be long and painful.
"With the existing stimulus medicine so clearly failing to revive the patient, pressure will grow on the Bank to try more drastic treatment.
"Sir Mervyn's assertion that a cut in the UK base rate to a historic low of 0.25 per cent would be counterproductive will disappoint many. QE remains his prescription of choice. But if it fails to deliver, then what?"
Spectator editor Fraser Nelson highlighted the Bank's appalling forecasting record following yet another downward revision in growth. He said on Twitter: "Bank of England's economic forecasting record is worse than your average octopus. Easily the worst of any major central bank."
Danny Blanchflower, who once sat on the MPC, was critical of King's suggestion that the economy is "slowly healing" saying on Twitter: "I see no evidence of that when the economy is smaller today than it was a year ago."