Bank of England lowers its growth forecasts

(Update) Bank warns the recovery will be 'choppy' and inflation will now be above target for longer than previously thought.

Markets

Other markets

Market Data Notice

More market charts

by Deborah Hyde on Aug 11, 2010 at 10:50

Bank of England lowers its growth forecasts

(Update) The Bank of England has said it is now more pessimistic about the outlook for growth in the UK and believes inflation will stay above the 2% target for longer than it forecast back in May.

While there have been increasingly worrying signs that the pace of recovery is slowing and the Bank is concerned that lending to businesses remains more subdued than it had hoped, governor Mervyn King said the Bank's central forecast was still for a 'relatively slow but steady recovery'.

The Bank now believes growth will be around 2.5% next year, far lower than the growth of 3.4% it had been forecasting just three months ago.

The chart above shows the Bank's range of outcomes for UK economic output until 2014. The dark green represents the Bank's central forecast.

After the news, the pound fell to its lowest level for a week, down two cents at $1.5680 and the FTSE 100 added to earlier losses, down 95 points, or 1.75% to 5,281.

Mark Bolsom, head of the UK trading desk at Travelex described today's report as 'a bit of a reality check.'

He said it is clear 'the bias of policy was leaning towards additional quantitative easing, rather than monetary tightening,' which makes the pound relatively unattractive compared to other currencies.

Even though preliminary second quarter growth was far greater than most had expected at 1.1%, economists and the Bank of England are agreed that growth will be weak in the second half of the year, with total growth for 2010 unlikely to be more than 1.5%.

Given the Bank of England's previous forecasts were more optimistic than most, downgrades had been expected but the cautious outlook was even more pessimistic than many had forecast.

The new forecasts show inflation above target until the end of 2011 but falling after that as 'temporary' factors such as the increase in VAT next year fade.

Email a friend

Email me when someone comments on this article Print

6 comments so far. Why not have your say?

Who cares? if they could actually forecast properly we wouldn't be in the mess we're in.

report this

The BOE forecasts are totally irrelevant. Reports of the demise of Britain are premature.The real value in the British economy is the productive manufacturing and intellectual property resident in the country.

BOE forecasts hinge on retail sales and house prices.

Retail goods are mainly imported so their collapse is great news, house prices are driven solely by population growth- a secondary concern

Ask any British exporter for leadtimes and they will tell you that they are busy.

If you work in the service sector its tough but you are now paying for our poor government of the last 30 years.

New mantra for the latest clot at number 10

"EXPORT EXPORT EXPORT".

report this

William's comments are spot on! Our politicians are totally incompetent. Cameron is only interested in his image! His ring fencing of overseas aid is my biggest concern. Protect us British, particularly the elderly and the genuinely vulnerable before we give money away we are borrowing (due to our Govt being bankrupt)!

report this

Improving the lot of underdeveloped countries is in our own self interest - although in the longer term.

Countries like India, Brazil and China which used to be underdeveloped are now a prime target for our exporters.

report this

Very true David, it was always a model of the empire that we should develop a nation up to the point where it is established as a valuable trading partner. Our exports are much bigger than people realise, in 2009 we were the worlds 9th largest exporter

report this

Victor Meldrew

Aug 11, 2010 at 21:29

My excuse for blethering this time is that someone mentioned 'empire'. Didn't we join the EU because that was where our future lay, and the Commonwealth was a relic? Lately I've heard how disgraceful it is that we export more to Ireland than India (or was it Sweden and China, which would rather undermine my point).

But regarding the topic, if the BoE's forecasts were consistently right, that would be news.

report this

Please sign in here or register here to comment. It is free to register and only takes a minute or two.