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Bank of England questions recovery

THE Bank of England is expected to highlight fresh doubts over the UK’s fightback from recession with forecasts of slowing growth and a spike in the cost of living, PA reports.

Governor Mervyn King has already warned that a “sustained” recovery is uncertain despite the 1.1% advance seen by the economy between April and June.

And the forecasts will reflect the deficit-busting squeeze from Chancellor George Osborne’s emergency Budget as inflation is pushed up by next January’s VAT hike to 20%, but growth is dampened by the fiscal clampdown.

The Bank’s May estimates suggest growth of around 1.5% this year and an optimistic-looking 3.4% advance during 2011. At June’s Budget, the independent Office for Budget Responsibility (OBR) lowered estimates to just 1.2% and 2.3% for this year and next.

While the Governor does not believe the Budget made a “significant difference” to the chances of a double-dip recession, the Chancellor’s deficit-tackling measures add up to a £113 billion clawback from the taxpayer by 2014/15.

A still-weak banking sector will prove another headwind to recovery, according to the Governor, who recently stressed there was a “considerable distance to travel” before interest rates move from their current 0.5% record low.

The growth concerns come as the Bank’s Monetary Policy Committee wrestles with Consumer Prices Index inflation proving far stickier than previously forecast.

The VAT rise due to kick in next year will keep inflation well above the Bank’s 2% inflation target for most of next year - although wage growth is lagging far behind, putting the squeeze on households.

This was posted in Bdaily's Members' News section by Ruth Mitchell .