Wednesday May 13, 01:09 PM
Britain faces 'slow' economic recovery: BoE
By Ben Perry
LONDON (AFP) - Britain's recession-hit economy likely faces a 'slow' recovery, Bank of England head Mervyn King said on Wednesday after the BoE said the outlook for British growth and inflation is "unusually uncertain."
"The economy will eventually heal, but the process may be slow," Governor King told reporters after the Bank of England published its latest quarterly forecasts.
"There are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained," he added.
The Bank of England said in its report that "the prospects for economic growth remain unusually uncertain, reflecting the exceptional economic and financial factors affecting the outlook."
It also suggested that the British economy would return to growth early next year.
The British pound slumped against the euro and dollar following the report as dealers said the outlook indicated that Britain would not see a rise in interest rates any time soon.
"The Bank of England are not buying the 'it's all over' mood (for the global recession) that seems to be sweeping over investors and market pundits," said ING Financial Markets economist Rob Carnell.
"The key phrase in their latest inflation report was 'It is more likely than not, that CPI (NYSE: CPY - news) inflation will be below the two percent target in the medium term' which indicates that there will be no end to the current policy of credit easing any time soon, and that rates will be kept low for the foreseeable future," he added.
Last week, the Bank of England decided to keep interest rates at a record-low 0.5 percent as Britain battles its sharpest slowdown in 30 years.
It agreed also to pump out another 50 billion pounds (75 billion dollars) of new money to boost bank lending following the crippling credit crunch.
The move to increase the new money supply to 125 billion pounds to boost bank lending is a form of monetary policy known as 'quantitative easing' or QE.
Under QE, the British central bank buys government bonds from commercial banks in the hope that the institutions will use the money to lend once again to businesses and individuals.
Jonathan Loynes, an analyst at Capital Economics, said the BoE's report injected a "sensible element of caution" amid recent talk about "green shoots" of economic recovery.
"Although the Bank still predicts a reasonably solid recovery in GDP growth next year, it has pulled its forecasts down a bit from February and warned that a sustained recovery could take some time to arrive.
"This appears at least partly to reflect a gloomier view on the outlook for bank lending," he added.
The Bank of England's key aim is to keep British annual inflation close to a government-set target rate of 2.0 percent.
British 12-month consumer price inflation (CPI) slowed to 2.9 percent in March owing to sliding gas, housing and transport costs, according to recent official data.
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