| BoE slashes UK growth forecast |
LONDON Britain’s economy will barely grow this year and may have taken a bigger hit from the euro zone debt crisis than thought, the Bank of England said on Wednesday, but it gave little indication that it would rush to pour further stimulus into the economy.
The bank resumed its asset buying last month, launching a four-month, 50-billion-pound ($78 billion) programme with newly created money to keep a lid on borrowing costs and pump more cash into the economy.
Since then, figures have shown Britain’s recession has deepened, with little sign of a hoped-for bounce in activity in July or a boost from the Olympic Games the country is hosting.
In its quarterly inflation report, the bank said that growth in two years time was likely to be around 2 per cent a year, down sharply from the forecast of 2.7 per cent just three months ago.
“We are navigating rough waters, and storm clouds continue to roll in from the Euro area,” bank’s Governor Mervyn King told a news conference, presenting the central bank’s latest forecasts.
“Output has contracted in each of the past three quarters, but the underlying data is probably not as weak as the headline data suggests,” he said.
Britain is languishing back in recession as government spending cuts, the drag from Europe, bad weather and one-off factors including an extended break for the queen’s Diamond Jubilee celebrations weigh.
The country has not recovered from the financial crisis, and many Britons are worse off as the government’s tax hikes and spending cuts to slash a huge budget deficit as well as soaring prices outpaced meagre wage rises and eroded living standards.
If the bank is to provide further help, King signalled it would come via more money printing rather than cutting interest rates, already at a record low 0.5 per cent.
“It (cutting interest rates) would damage some financial institutions and would therefore be counter-productive, which is precisely why we haven’t done it,” he said.
“I don’t accept the premise of the question that (QE) asset purchases are having a diminishing effect, I don’t believe that ... They create money in the economy and that can have an effect.”
Sterling rose and gilt futures pared gains as markets scaled back bets for further easing.
This marks a break with previous forecasts, which have shown strong rebounds in growth, even after short-term weakness.
“GDP growth in the second half of the forecast period is more likely to be below than above its historical average rate,” the central bank said in its Inflation Report.
The outlook reflected the possibility that the factors contributing to the weakness of growth since the financial crisis may persist, the report said.
Reuters
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