Bank of England warns of economic “headwinds” as growth forecast is slashed

News Article - 23 August 2011
Category: Business

Bank of England governor Mervyn King has warned economic "headwinds are growing stronger by the day" as the Bank slashed its growth forecast from 1.8 per cent to 1.5 per cent.

The decision has been taken amid Europe's debt crisis and fears of a contraction within the US economy.

Mr King, who presented the Bank's latest quarterly Inflation Report, admitted inflation was still on course to hit 5 per cent in 2011.

"The imbalances in the world economy are still not being properly tackled and the burden of debt is still there," said Mr King.

"This problem will take, I think, a number of years before we will find our way through it."

Despite the global economy having to tackle the burden of debt, King praised the efforts of the UK Government for its aim to tackle the nation's debt in the medium term.

"The central view is there will be growth. It is a gradual recovery, but it is still a recovery.

"The UK has done what it can. We have a credible medium-term fiscal plan, which many countries do not, and we have had a depreciation of our exchange rate [which could help exports]."

Hugh Pym, chief economics correspondent at BBC News, believes the UK economy's short-term fate is "closely tied to that of the US and the Eurozone".

Factors such as higher fuel bills have also contributed to the nation enduring its longest squeeze in living standards since the 1920s. But Mr King added that recent falls in the price of oil and other commodities could accelerate the end of this troubled era of living standards.

However, some financial analysts predict the crisis in the US and eurozone markets will only add to the Bank's existing worries.

James Knightley, economist at ING, said: "It is important to remember that the report itself was compiled before the recent market volatility and so the forecasts will not have reflected the recent plunge in equities and commodity prices."

Article keywords: Bank of England, Mervyn King, UK economy, US economy, Inflation Report

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