Bank Governor warns of eurozone 'tearing itself apart'
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".
At 23:01:53 in ScotlandThe Commonwealth Games is 11 days of non-stop action.
At 22:40:56 in HeadlinesThe last surviving member of the US air crew that dropped an atomic bomb on Hiroshima has died in Georgia aged 93.
At 22:35:14 in EnglandA man has died from a suspected "fatal reaction" to a drug taken at a party in Newcastle, police have said.
At 22:34:17 in SportCastleford Tigers forward Weller Hauraki has been suspended for two matches after pleading guilty to "recklessly striking with his knees" in the 18-18 draw against Hull FC.
At 22:32:49 in SportManchester United continued their impressive form in the Premier section of the Milk Cup by beating Co Armagh 3-0 at the Riada Stadium in Ballymoney.
At 22:31:11 in SportEngland's Yana Rattigan took silver in the women's freestyle 48kg at the Commonwealth Games, losing 11-8 to Vinesh of India in the final.
At 22:11:22 in ScotlandA second man has been arrested and charged in connection with a £1m robbery at a jewellery store in Edinburgh.
At 22:10:18 in SportAdam Jones is set to sign a contract with Ospreys once the regions and Welsh Rugby Union (WRU) agree a new deal over the funding of the domestic game.
At 22:07:50 in EnglandThree women and two men have been charged as part of an investigation into staged car crashes and fake insurance claims in Wirral.
At 22:05:30 in EnglandThe first flamingo egg in eight years has been laid at a wildlife centre in Wearside, according to the charity that runs it.
Harvard CitationBBC 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 29th Jul 2014]
News In Other Categories
Experts say the world's first malaria vaccine could be approved for use in 2015.
A libel case brought by a Conservative assembly member has been adjourned and is unlikely to resume until next year.
A retired senior diplomat has suggested that "much anti-Semitism is a reaction to the appalling Israeli treatment of its Arab neighbours".
The last surviving member of the US air crew that dropped an atomic bomb on Hiroshima has died in Georgia aged 93.
A man has died from a suspected "fatal reaction" to a drug taken at a party in Newcastle, police have said.
A ban on steel-string guitars in prison cells in England and Wales has been reversed after a campaign by rock stars including Billy Bragg and Johnny Marr.