The Bank of England cuts UK growth forecast
As the Bank of England cuts its growth forecast and warns of volatile inflation, one economist tells Channel 4 News the Bank’s latest figures may still be too optimistic.
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The weak forecasts are likely to raise concerns over the strength of the UK economy in the face of Chancellor George Osborne’s fiscal squeeze.
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The Bank downgraded its expectations for gross domestic product in 2011 to around 1.7 per cent, from about 2 per cent in its February report.
In 2012, GDP is expected to be around 2.2 per cent, from just under 3 per cent.
Vicky Redwood, a senior UK economist at Capital Economics, told Channel 4 News she was not surprised by the figures: “They’re to be expected given the figures over the last couple of months but the forecast is still optimistic to us.”
Gross domestic product expanded by 0.5 per cent between January and March, in line with forecasts.
The Bank said the gloomier outlook reflected the dampening effects of rising energy prices and the impact that disappointing real wages will have on consumer spending.
The report warned the Government’s fiscal consolidation, which includes £81bn worth of spending cuts, will continue to weigh on activity over the next two years.
Vicky Redwood said she believed the Government’s austerity measures “would be one of the biggest economic contraints over the years to come.”
Downing Street said David Cameron had always made clear that rebuilding the economy would not be easy and that the recovery would be a “choppy” one.
The Prime Minister’s official spokesman said Mr Cameron had stressed in a speech earlier this year that the Government was not in a position to “just flick on the switch of government spending or pump the bubble back up”.
However, the Bank still said the “pace of the recovery was more likely than not to pick up from its recent soft patch” following tepid growth figures for the first quarter of 2011.