Belfast Telegraph

Bank boss warns of a ‘choppy recovery’

By Russell Lynch and Jamie Grierson

Bank of England governor Mervyn King warned of “a choppy recovery” for the UK economy today as he braced households for slower growth and stickier than expected inflation.

The Bank's latest forecasts showed slower growth than previously thought next year as Chancellor George Osborne's emergency Budget kicks in, while inflation will stay above the Bank's 2% target until the end of 2011 due to next January's VAT hike.

Households will also be squeezed by tighter credit conditions as banks repair their balance sheets, the report added.

Governor Mervyn King said the UK recovery was likely to continue but the overall outlook was weaker than three months ago.

The latest gloom from the Bank comes after recent surveys showed a sharp slowdown in high street sales, falling house prices and consumer confidence at its lowest for more than a year.

The governor said the impact of the financial crisis would fade only gradually, with the problems in the banking sector “likely to mean a choppy recovery”.

The Bank added that household disposal incomes would be squeezed as a result of the deficit-tackling measures, with some companies likely to face lower public sector demand.

Households have also become more pessimistic in recent months amid persistent fears over unemployment and subdued wage growth, the report added.

The Bank's monetary policy committee has already slashed interest rates to a record low of 0.5% and pumped £200bn into the money supply, but its latest inflation forecasts signal that further action could be on the way.

The projections show consumer price index inflation falling more slowly because of the VAT rise, although CPI still undershoots the Bank's 2% target in two years time.

Locally Northern Bank last week downgraded its forecasted growth for the Northern Ireland economy from 1% to 0.8%.

While its quarterly sectoral forecasts report also predicted 2% growth for 2011 but it warned there is still considerable ground to cover before the economy's economic output returned to pre-recession levels.

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