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BOE projects weaker outlook for UK
Source: Bloomberg News |
November 17, 2011, Thursday
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Print Edition
Print Edition
BANK of England Governor Mervyn King said Britain faces a "markedly weaker" outlook for economic growth and persistent danger from Europe's debt crisis, as policy makers signaled they may need to expand stimulus further.
"Despite the easier monetary stance, growth over the next few quarters is likely to be markedly weaker than in the August projection" and may be "broadly flat" in the first half of 2012, King told reporters in London yesterday as he presented the quarterly Inflation Report. "There is no meaningful way to quantify the most extreme outcomes associated with developments in the euro area."
The Bank of England is in the second month of a program of bond purchases aimed at shielding the UK economy from the fallout from Europe's debt crisis. Policy makers said yesterday that failure by European officials to resolve the turmoil could lead to "significant adverse effects" on the global economy.
"The prospects for the UK have worsened," the central bank said in its report. Based on its current 275 billion-pound (US$433 billion) bond program remaining unchanged, inflation may fall below the 2 percent target in two years, signaling that officials may need to increase the stimulus plan.
UK 10-year gilts rose after the release of the report, with the benchmark generic bond yield of that maturity trading down 2 basis points at 2.14 percent as of 11:10am yesterday in London. The pound was down 0.4 percent at US$1.5767.
The BOE sees inflation at about 1.5 percent in two years, according to the Inflation Report. It sees annual gross- domestic-product growth at about 3.1 percent. At its trough in mid-2012, annual economic growth will be about 0.9 percent. The forecasts were published in the form of fan charts and the data underlying the charts will be out next week.
The forecasts are based on the bond-purchase target staying at the level set in October and market expectations for interest rates. Those don't show an interest-rate increase fully priced in until 2014. The benchmark is now at 0.5 percent.
When it expanded so-called quantitative easing in October, King cited strains in financial markets. The central bank said yesterday that "although banks have faced difficulties in obtaining funding, that is likely to have happened too recently" to impact credit availability. "If they persist, the strains in bank-funding markets may lead to a contraction in the supply of bank credit."
Europe's debt turmoil has spread to Italy, sending its bond yields to a level that led Greece, Ireland and Portugal to seek bailouts. While the region's leaders agreed on October 26 to beef up the region's rescue fund, they have yet to flesh out details of the plan.
The UK recovery is also being hit by the government's fiscal squeeze, the biggest since World War II.
"Despite the easier monetary stance, growth over the next few quarters is likely to be markedly weaker than in the August projection" and may be "broadly flat" in the first half of 2012, King told reporters in London yesterday as he presented the quarterly Inflation Report. "There is no meaningful way to quantify the most extreme outcomes associated with developments in the euro area."
The Bank of England is in the second month of a program of bond purchases aimed at shielding the UK economy from the fallout from Europe's debt crisis. Policy makers said yesterday that failure by European officials to resolve the turmoil could lead to "significant adverse effects" on the global economy.
"The prospects for the UK have worsened," the central bank said in its report. Based on its current 275 billion-pound (US$433 billion) bond program remaining unchanged, inflation may fall below the 2 percent target in two years, signaling that officials may need to increase the stimulus plan.
UK 10-year gilts rose after the release of the report, with the benchmark generic bond yield of that maturity trading down 2 basis points at 2.14 percent as of 11:10am yesterday in London. The pound was down 0.4 percent at US$1.5767.
The BOE sees inflation at about 1.5 percent in two years, according to the Inflation Report. It sees annual gross- domestic-product growth at about 3.1 percent. At its trough in mid-2012, annual economic growth will be about 0.9 percent. The forecasts were published in the form of fan charts and the data underlying the charts will be out next week.
The forecasts are based on the bond-purchase target staying at the level set in October and market expectations for interest rates. Those don't show an interest-rate increase fully priced in until 2014. The benchmark is now at 0.5 percent.
When it expanded so-called quantitative easing in October, King cited strains in financial markets. The central bank said yesterday that "although banks have faced difficulties in obtaining funding, that is likely to have happened too recently" to impact credit availability. "If they persist, the strains in bank-funding markets may lead to a contraction in the supply of bank credit."
Europe's debt turmoil has spread to Italy, sending its bond yields to a level that led Greece, Ireland and Portugal to seek bailouts. While the region's leaders agreed on October 26 to beef up the region's rescue fund, they have yet to flesh out details of the plan.
The UK recovery is also being hit by the government's fiscal squeeze, the biggest since World War II.
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