24/Apr/2014 - Last News Update: 05:28

Bank Governor warns of eurozone 'tearing itself apart'

Category: Business

Published: 16th May 2012 11:36:39

The Bank of England has cut its growth forecast for this year to 0.8% from 1.2%, saying the eurozone crisis is still the main threat to UK recovery.

The eurozone was "tearing itself apart" and the UK would not be "unscathed", said Bank governor Sir Mervyn King.

The rate of inflation will not fall as quickly as previously thought, he said, and will remain above the government's 2% target "for the next year or so".

Sir Mervyn was presenting the Bank's quarterly inflation report.

He told a news conference that the euro area posed the greatest threat to the UK recovery, and there was a "risk of a storm heading our way from the continent".

"We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country's history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.

"The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2% strikes me as wholly unrealistic," Sir Mervyn said.

In addition to the eurozone crisis, volatile energy and commodity costs, and the squeeze on household earnings, meant that the UK economy would not return to pre-financial crisis levels before 2014.

But Sir Mervyn remained optimistic about the longer term. "We don't know when the storm clouds will move away. But there are good reasons to believe that growth will recover and inflation will fall back," he said.

On quantitative easing, he said that no decisions had been made whether or not to continue pumping money into the economy. The last stimulus programme was still "working its way through the system".

Sir Mervyn's comments came on the day that official unemployment figures showed a fall in the jobless rate, underlining recent surveys that the private sector had become more confident about hiring labour.

He said the fall in joblessness was consistent with the expected gradual recovery in the UK economy.

But Graeme Leach, chief economist at the Institute of Directors, said of the Bank's report: "Talk about kicking an economy when it's down.

"On top of the euro crisis and a double-dip recession, the Bank of England is now saying inflation may not fall fast enough to permit more quantitative easing.

"Actually we think the inflation outlook is probably better than the MPC thinks, with the impact of the euro crisis, declining real incomes and weak money supply growth suggesting inflationary pressures may recede later this year and into 2013.

"After many years of underestimating inflationary pressure let's hope the Monetary Policy Committee is now making the opposite mistake by overestimating it".

Source:
BBC News External Link Show Citation

Latest News

Harvard Citation

BBC News, 2012. Bank Governor warns of eurozone 'tearing itself apart' [Online] (Updated 16th May 2012)
Available at: http://www.ukwirednews.com/news/1428903/Bank-Governor-warns-of-eurozone-tearing-itself-apart [Accessed 24th Apr 2014]

News In Other Categories

  • Griff Rhys Jones withdraws from Cardiff chancellor role

    Griff Rhys Jones has withdrawn from becoming Cardiff University's new chancellor just two weeks after an embarrassing debacle which saw his appointment halted at the last minute.
  • Elderly care demand to 'outstrip' family supply

    The number of older people in England needing care will "outstrip" the number of family members able to provide it by 2017, a think tank has warned.
  • Elderly care demand to 'outstrip' family supply

    The number of older people in England needing care will "outstrip" the number of family members able to provide it by 2017, a think tank has warned.
  • Onshore wind farms subsidies would be scrapped by Tories

    The Conservatives have said they will not subsidise new onshore wind farms if they win the 2015 general election.
  • Qualcomm shares dip on weak outlook

    Shares in Qualcomm, one of the world's biggest chipmakers, fell 5% in after hours trading as it issued a weaker than expected growth outlook.
  • Bristol Academy extends reach overseas with first foreign students

    With the doors to its brand new £1million training centre officially open, one of the UK's leading apprentice training providers, Bristol based S&B Automotive Academy, is showcasing its world-class facilities by launching a series of foreign student exchanges for the first time in its 41-year history. To get a flavour of what life is like as an apprentice in the UK, the Academy hosted 16 apprentice engineers and bus drivers from the G9 Automotive College in Hamburg, Germany, as part of a Europe-wide vocational training initiative called the ‘Leonardo Programme’ with support from the European Social Fund. In a reciprocal arrangement, S&B will be sending nine apprentices to Germany during February 2012 so that they can get an appreciation of life in the automotive industry on the Continent. A further three German exchange groups are being planned for next year. Designed to assist the development of vocational skills and training across Europe, including work placements for trainees, the Leonardo Programme has a budget of €1.75bn, which is helping to encourage UK organisations to work with their counterparts abroad. In what is expected to be another challenging year for employers in the UK automotive sector, S&B’s Chief Executive, Jon Winter, claims that the exchange initiative will bring many benefits to the Academy and its apprentices: “In a world of global automotive brands, it’s important for our learners to understand the international context of the industry they have chosen to make their career. This new exchange programme will enable apprentices and Academy staff alike to achieve a better understanding of the challenges and opportunities within the automotive arena in Europe. With the Academy’s influence also extending to the USA and Asia, there’s every possibility that this initiative could move further afield in the future.” Continued Winter: “The need for skilled technicians across the world is on the increase and we actively encourage our apprentices to look at broader horizons during their training. Many of them have already learned the phrase ‘Vorsprung durch Gelehrtheit’, quite simply, ‘Advancement through learning.” In the 2010/11 academic year, S&B doubled the number of successful Apprenticeships over the previous year with some 350 apprentices graduating from the Academy. At the same time, achievement levels reached an all-time high with an overall success rate of 85%. For those learners on the Advanced Apprenticeship three-year programme, success rates were even higher, at over 98%. PHOTO CAPTION: As part of their exchange visit, S&B Automotive Academy arranged for the German apprentices to visit Hampshire bus operator, Bluestar, at its Barton Park depot. The students are pictured with S&B’s Andy West (3rd right) and Steve Prewett, Bluestar’s Area Engineering Manager (2nd right). Ends http://www.sandbaa.com