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Bank of England slashes growth forecast

in International Business

Bank of England slashes growth forecast

THE Bank of England has slashed its forecast for growth this year in recession-affected Britain to close to zero per cent, saying the greatest threat to recovery comes from the eurozone crisis.

 According to BoE’s latest quarterly report, Britain’s gross domestic product (GDP) was predicted to be almost flat, down from central bank’s previous forecast of just below 1.0 percent.

 This news was widely expected by traders, and hardly changed London’s FTSE 100 shares index and the British pound.

 According to analysts, the outlook signalled further cash stimulus from the BoE, and possibly a cut to BoE’s main lending rate, to near zero percent, before the end of the year.

However, although Bank of England has acknowledged the bleak economy, it gave little indication that it would rush to pour further stimulus into the economy, nor will they be cutting interest rates, already at a record low of 0.5 percent.

 “It (cutting interest rates) would damage some financial institutions and would therefore be counter-productive, which is precisely why we haven’t done it,” Bank of England Governor Mervyn King told a news conference on Wednesday, signalling that if the bank was to provide further help, it would be via  more money printing.

 Figures show that Britain’s recession has deepened, despite last month’s launch of a four-month 50 billion pound program by the BoE, involving buying assets with newly created money in order to pump more cash into the economy.

 “We are navigating rough waters, and storm clouds continue to roll in from the Euro area,” said King.

 Britain is not a member of the eurozone but the bloc is its major trade partner.

 “Output has contracted in each of the past three quarters, but the underlying data is probably not as weak as the headline data suggests,” he said, adding that fiscal consolidation and tight domestic credit conditions were also “likely to continue to weigh on demand”.

 In its quarterly inflation report, BoE said that growth in two years was likely to be around 2 percent per year, down from the forecast of 2.7 percent just three months ago.

 “GDP growth in the second half of the forecast period is more likely to be below than above its historical average rate,” it said, reflecting the possibility that the factors contributing to the weakness in growth may continue.



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