Accessibility links

Bank of England Predicts Unsteady Economic Recovery for Britain

The head of the Bank of England says economic recovery will be choppy, and lowered the forecast for Britain's economic growth. Inflation is expected to remain higher than previously forecast until the end of 2011. World markets dipped on the news, which came after the U.S. Federal Reserve downgraded its growth forecast.

In his quarterly inflation report, the head of the Bank of England, Mervyn King, revised the bank's previous outlook prediction. "Inflation is now expected to remain above the two percent target until the end of 2011, significantly longer than predicted in May," said King.

The forecast for Britain's economic growth was cut back as well, in part, because of government cutbacks announced in June. The banking sector has also been criticized by analysts and government officials for what they say is a reluctance by the banks to lend.

King also says credit conditions are not easing as quickly as the Bank of England had expected. "It will take many years for bank balance sheets and fiscal positions to return to anything like normal," he said. "In the meantime, they will act as headwinds on recovery."

"But continuing monetary stimulus and the earlier depreciation of sterling will act as tailwinds. Looking ahead, the U.K. economy is facing a major rebalancing away from private and public consumption and towards net exports. Achieving that rebalancing while confronting those headwinds is likely to mean a choppy recovery," he added.

The announcement in London came on the heels of similar predictions by the U.S. Federal Reserve on Tuesday. David Jones, chief strategist at investment firm IG Index, says the global message is clear. "It has confirmed that the recovery really is fragile, and there are going to be potentially some quite frightening dips along the way," he said.

But dips, he says, do not necessarily mean a worldwide recession. "I do think at the moment we are going to see steady growth, but we are going to have to take it on a quarter-by-quarter basis," said Jones. "But I don't think we have to worry about slipping back into recession just yet."

In Britain housing prices and consumer confidence have dipped. Unemployment figures fell in the three months ending in June, a positive sign, although long-term unemployment remains high.