The growth forecast for 2011 was downgraded to around 1 per cent, from the previous estimate of 2 per cent.
In February it revised it downwards from 3.27 per cent to 2.6 per cent. Governor Mervyn King said inflation “remains uncomfortably high and well above the 2 percent target. And there is a good chance that, if utility prices rise further later in the year, inflation will reach 5 per cent.”
“The recent pattern of revisions to the projections over the next year, downward to growth and upward to inflation, has continued,” he said.
“The most likely outcome for growth in the medium term is somewhat weaker than in the February report, reflecting a more gradual recovery in consumption and a less pronounced boost from net exports,” said the Bank of England.
While the near-term price outlook has worsened it said it still sees inflation falling to its goal of 2 per cent or below – but not before 2013.
Just as snow was blamed for the poor fourth quarter figures at the end of last year, the Bank sought to attribute the volatility of some of it statistics to once-off factors, such as the additional bank holiday for the royal wedding last month, and the impact from the Japanese earthquake and tsunami.
In reponse to the report, Angela Eagle MP, Labour’s Shadow Chief Secretary to the Treasury, said: “On this first anniversary of the coalition, the Governor of the Bank of England has made a revealing admission. He said that a year ago he expected the economy to have grown by 1.5 per cent over the last six months. But in fact over that period and since George Osborne’s spending review and VAT rise the economy has flatlined and shown zero growth.
She added: “This latest downgrade of the growth forecast from the Bank of England follows three downgrades by the Office for Budget Responsibility. A year ago the OBR was predicting growth of 2.6 per cent under Labour’s plans, something which now looks like an impossible prospect. As the Governor rightly noted the UK economy is still four per cent below the level it was at before the global financial crisis, while GDP in the US has now surpassed its pre-crisis peak.”
The International Monetary Fund also downgraded growth prospects for Britain to 1.75 per cent this year, down from an earlier prediction of 2.1 per cent because of commodity price inflation and the Government’s austerity programme, which it endorses
Global GDP is predicted by the IMF to grow by 4.4 per cent this year. The IMF expects economic output in China to grow by nearly
10 per cent.
The CBI predicted GDP will rise by 1.7 per cent this year and 2.2 per cent in 2012 in its own downward revision from its previous forecast in February when it predicted increases of 1.8 per cent and 2.3 per cent respectively.
Rising prices and unemployment, combined with spending cuts and tax rises, have left the UK far less robust than would normally be expected in a recovery, it said, although it stands firmly behind the government’s plans.
