Wednesday, 16 November 2011


Bank governor Sir Mervyn King sent a stark message to political leaders as he flagged an unresolved eurozone debt crisis as the "single biggest risk" to the economy. But despite cutting forecasts, some experts accused the bank of being too optimistic and have predicted another multibillion-pound injection into the economy as early as next month. In its quarterly inflation report, the bank slashed its central, or most likely, growth estimate to around 1% in both 2011 and 2012 - but compared to previous forecasts the Bank's projections reveal a greater chance of the economy shrinking in the first three quarters in 2012. The forecasts assume the problems in the eurozone do not deepen, quantitative easing is maintained at current levels and interest rates stay at record lows. The worsened prospects for the UK economy mean inflation is likely to fall far quicker than previously estimated, hitting the Government's 2% target in the second half of next year before falling to as low as around 1.3% in 2013. Sir Mervyn, who was formally knighted at Buckingham Palace on Tuesday, said UK economic activity will be broadly flat until the middle of next year and added that the country faces a "difficult economic environment". The bank's report backs the City's view that interest rates will be kept on hold for the foreseeable future and another round of quantitative easing (QE) will be rolled out before February. But some economists were still not convinced. Vicky Redwood, chief UK economist at Capital Economics, said: "Even the bank's downgraded growth forecasts still look optimistic to us - we expect zero growth next year."



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