UK Economy to “zigzag”

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A report by the BBC states that the Bank of England says the UK economy ‘to zigzag’ this yearBank of England governor Sir Mervyn King says “path to recovery slow and uncertain”

The UK economy will “zigzag” this year, dipping in and out of growth, Bank of England chief Sir Mervyn King has said.

The Bank’s quarterly inflation report predicts inflation will continue to fall in the coming months. However, it now predicts inflation decline to 1.8% by 2014, not as low as the previous estimate of 1.3%.

Sir Mervyn also repeated that the eurozone crisis remained a big risk, but said that the UK economy should recover gradually.

The Bank’s report said it doesn’t think the UK will fall back into recession this year, and it believed the rate of growth would be about 1.2%.

The report came on the same day official figures showed UK unemployment rose by 48,000 to 2.67 million in the three months to December, the smallest rise in almost a year.

Sir Mervyn said that some business surveys had indicated a pickup in the economy at the start of this year, but said this may not last.

“The fiscal consolidation and tight credit conditions at home and the weakness of our major overseas trading partners are acting as a drag on growth,” said Sir Mervyn.

“The underlying need for repair of balance sheets means that the path of recovery is likely to be slow and uncertain. For much of this year, there is likely to be a zigzag pattern of alternating positive and negative quarterly growth rates.”

He also said the extra Bank Holiday for the Queen’s Diamond Jubilee made it even harder than usual to interpret the official estimates of growth. Sir Mervyn said the slowdown in inflation would aid economic recovery as people’s spending power became less squeezed. Figures released on Tuesday showed that Consumer Prices Index (CPI) inflation slowed to 3.6% in January, from December’s rate of 4.2%.

Savers have seen the value of their savings eroded by inflation, which has not been compensated for by increases in the rate of investment return, for example, from interest rates.

Sir Mervyn said many savers were receiving negligible returns, and these people, and the millions out of work had had their spending power reduced sharply. He said although he had “deep sympathy” for savers, increasing interest rates to help them could be counterproductive as it would damage the fragile economy.

“These are consequences of the painful adjustment prompted by the financial crisis and the need to rebalance our economy,” he said. “Unfortunately there is no easy remedy.”

Sir Mervyn said times remained “challenging” for the UK economy, and there remained a number of factors that were completely unpredictable.

 

 

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