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Bank sees slow economic recovery Bank sees slow economic recovery
(30 minutes later)
The Bank of England says that the UK economic recovery is likely to be slow and protracted.The Bank of England says that the UK economic recovery is likely to be slow and protracted.
Its latest quarterly inflation report suggested the economy would be declining by about 4.5% year-on-year by the second quarter of 2009. The Bank has cut its growth forecast over the next two years and raised its estimate for inflation since February.
It said that the economy was not likely to begin to growing again until 2010. It had earlier said that the recovery was likely to start later this year. It appears to be gloomier than the government, which has forecast a decline in GDP of about 3.5% this year.
The forecasts are gloomier than the government's Budget projections. The Bank is also more pessimistic about how quickly growth will recover to normal levels, but says there is more uncertainty than usual in its forecast.
But the Bank admitted that there was a great deal of uncertainty around its forecasts. "The prospects for economic growth remain unusually uncertain, reflecting the exceptional economic and financial factors affecting the outlook," the Bank said in its latest quarterly inflation report.
"The prospects for economic growth remain unusually uncertain, reflecting the exceptional economic and financial factors affecting the outlook," the Bank said in the report. The Bank has not provided a single forecast for economic growth, but its central projection appears to be for a decline of about 3.9% this year and growth of about 1% in 2010.
There are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained Bank of England Governor Meryvn King Are there green shoots of recovery? Flanders: Bank's cautious messageThere are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained Bank of England Governor Meryvn King Are there green shoots of recovery? Flanders: Bank's cautious message
Jonathan Loynes, an economist at Capital Economics, said that Bank of England had injected "a sensible element of caution amidst recent excited talk of the green shoots of recovery".Jonathan Loynes, an economist at Capital Economics, said that Bank of England had injected "a sensible element of caution amidst recent excited talk of the green shoots of recovery".
"This appears at least partly to reflect a gloomier view on the outlook for bank lending," he said."This appears at least partly to reflect a gloomier view on the outlook for bank lending," he said.
The bank's gloomy outlook hurt sterling, which fell to $1.5180 against the dollar from $1.5315 before the report was released.The bank's gloomy outlook hurt sterling, which fell to $1.5180 against the dollar from $1.5315 before the report was released.
'Healing time''Healing time'
Bank of England Governor Mervyn King said that the economy would take time to heal.Bank of England Governor Mervyn King said that the economy would take time to heal.
"There are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained, " Mr King said."There are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained, " Mr King said.
"But in the light of the state of balance sheets particularly in the financial sector, the committee judges that the risks are weighted towards a relatively slow and protracted recovery.""But in the light of the state of balance sheets particularly in the financial sector, the committee judges that the risks are weighted towards a relatively slow and protracted recovery."
INFLATION REPORT The Bank of England report in detail [2.6 MB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here Recession tracker: UnemploymentINFLATION REPORT The Bank of England report in detail [2.6 MB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here Recession tracker: Unemployment
He said that the timing and strength of the recovery was "highly uncertain".He said that the timing and strength of the recovery was "highly uncertain".
Mr King said he saw some reasons for optimism and the pace of economic decline had moderated.Mr King said he saw some reasons for optimism and the pace of economic decline had moderated.
He also said that government plans to stimulate the economy and the weak pound would help.He also said that government plans to stimulate the economy and the weak pound would help.
But he was also cautious and said problems in the banking sector had not yet been fully resolved.But he was also cautious and said problems in the banking sector had not yet been fully resolved.
The Bank forecast that inflation should fall to around 0.5% by the end of this year before picking up to around 1.2% in two years' time - below the Bank's target rate of 2%.The Bank forecast that inflation should fall to around 0.5% by the end of this year before picking up to around 1.2% in two years' time - below the Bank's target rate of 2%.
Quantitative easingQuantitative easing
Mr King said that said it was too early to ascertain whether the Bank's new policy of quantitative easing was successful but said he had not been disappointed by its effects.Mr King said that said it was too early to ascertain whether the Bank's new policy of quantitative easing was successful but said he had not been disappointed by its effects.
With interest rates as low as they can go, the Bank has been pumping money into the banking system through quantitative easing to stimulate the economy.With interest rates as low as they can go, the Bank has been pumping money into the banking system through quantitative easing to stimulate the economy.
The process involves the Bank effectively printing money to buy government and corporate bonds.The process involves the Bank effectively printing money to buy government and corporate bonds.
"It will take 6-9 months I think before we see more evidence," Mr King said."It will take 6-9 months I think before we see more evidence," Mr King said.
Analysts said the inflation report indicated that the Bank's interest rates would likely remain at 0.5% until well into 2010.Analysts said the inflation report indicated that the Bank's interest rates would likely remain at 0.5% until well into 2010.
"We certainly suspect that while latest data and survey evidence have been markedly improved and even hint that the economy could be close to stabilising, significant relapses remain highly likely," said Howard Archer, economist at Global Insight."We certainly suspect that while latest data and survey evidence have been markedly improved and even hint that the economy could be close to stabilising, significant relapses remain highly likely," said Howard Archer, economist at Global Insight.