Don't expect economic recovery soon, warns BoE

10 February 2010

The Bank of England has admitted that the economy will take longer to recover than expected.

In its latest quarterly Inflation Report, the central bank predicts that economic growth will reach about 3.2% in the second quarter of 2011 - weaker than an earlier prediction of 4%.
Inflation, meanwhile, is forecast to peak at 3.3% before easing to 0.9% and staying below the Bank of England's 2% medium-term target.
The economy only grew by 0.1% in the final three months of 2009, despite the record-low level of interest rates.
The Bank of England governor Mervyn King says the economy will "bump along the bottom", although he is hopeful of a "gradual recovery" in output.
Economists are also cautious over the outlook for the UK following the latest report.
Mark Bolsom, head of the UK trading desk at Travelex, says: "The Monetary Policy Committee continues to sit on the fence with this report. While it says that a gradual recovery is in place and further stimulus is not needed right now, it is clear it does not have overwhelming confidence in sustainable economic recovery."
Jonathan Loynes, chief European economist at Capital Economics, adds: "The Bank of England's February Inflation Report looks distinctly dovish and will raise questions over why the Monetary Policy Committee did not extend its quantitative easing programme further last week."
The Bank of England has injected £200 billion into the economy through quantitative easing although it chose to bring this process to a close earlier this month. However, it has not ruled out further action with economists believing more could be on the cards.
Loynes says: "Further policy support may yet be needed, whether that is more quantitative easing - the governor said it was far too soon to conclude that no more asset purchases would be made - or other forms of support. Either way, any tightening of monetary policy - conventional or unconventional - is a long way off."
Graeme Leach, chief economist at the Institute of Directors, says" "We agree with the governor of the Bank of England that it is far too soon to conclude that a further extension in quantitative easing won't be required.
"We think that it will and that the risk of a double-dip or even a triple-tumble recession and recovery remains high."

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