Bank of England expects economy to stagnate

| November 16, 2011 | 0 Comments
Bank of England expects economy to stagnate

In its latest quarterly inflation report the Bank of England warns that the UK’s economic outlook has worsened.

It suggests that the economy could stagnate until the middle of next year, with growth predictions for 2011 and 2012 cut to around 1 per cent, compared with its August forecast of 1.7 per cent growth in 2011 and 2 per cent in 2012.

A sharp fall in inflation is expected in the first half of next year from its current high level of 5 per cent and by 2013-14 it is expected to be below the Bank of England’s 2 per cent target.

In the quarter to September, unemployment in the UK increased by 129,000 to 2.62 million, its highest level since 1994.

The number of people in the 16 to 24 age group rose to over one million, according to figures from the Office for National Statistics (ONS).

Rising unemployment affected most parts of the UK, with the North East particularly badly hit, with an unemployment rate of 11.6 per cent compared with a UK average of 8.3 per cent.

The report led analysts to suggest that interest rates will remain at the current level of 0.5% into 2013.

The Bank of England’s governor, Sir Mervyn King, highlighted the ongoing debt crisis in the eurozone as the UK’s “single biggest risk” and warned that uncertainty caused by the eurozone crisis would potentially affect business investment and household spending.

He suggested that the European Central Bank was acting correctly in holding back from rescuing eurozone countries such as Italy and Spain from their debt crises and that a better option would be for the stronger eurozone governments to lend in a visible way to countries needing a bail out.

The German government today urged Britain to contribute to a Europe-wide tax on financial transactions, the proceeds of which will support the single currency.

The UK government has blocked the tax and is calling on Germany to allow the ECB to bail out ailing economies.

David Cameron is due to meet German chancellor Angela Merkel on Friday over the crisis.

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