Greek crisis will hamper UK growth, says BoE chief
Sir Mervyn King delivered a hard-hitting verdict on Europe's debt woes yesterday as he admitted the crisis will hamper UK growth this year and next.
The Bank of England governor said the single currency area was "tearing itself apart without any obvious solution", while he confirmed the Bank was working on contingency plans in the event of a worst-case scenario for the euro.
Warning that the UK was at risk of being in the path of the eurozone storm, Sir Mervyn ruled out a return to pre-financial crisis levels of growth before 2014 - with the Bank expecting little growth in 2012. He repeated his calls for European leaders to deliver a "credible solution" to its crisis.
In a further blow to households, the Bank said the rate of inflation will fall more slowly than previously expected, remaining above the Government's 2% target for the next year or so.
The comments in the Bank's quarterly inflation report came as financial markets suffered further losses as Greek leaders braced themselves for fresh elections after talks to form a coalition government failed.
But even after slashing its growth forecasts to 0.8% in 2012 and 2% in 2013, down from 1.2% and 3%, some economists said the Bank was still being "too optimistic", prompting more quantitative easing later this year.
Sir Mervyn warned that even with a "credible and effective" eurozone response, a prolonged period of sluggish growth and heightened uncertainty was still likely.
He said: "We are navigating through turbulent waters, with the risk of a storm heading our way from the continent. We don't know when the clouds will move away."
Sir Mervyn confirmed plans were being drawn up by the Bank, the Treasury and Financial Services Authority in the event of a major financial catastrophe, such as the break-up of the eurozone.
He added: "Contingency plans are being discussed and have been for some time."
The Bank said the biggest risk to recovery stemmed from the single currency bloc, the UK's main trading partner.
Government's target figure which inflation is currently above