The Bank of England has predicted growth of only 1% for 2012, and a fall in inflation from its current level of 5% to nearer 1.5% by the middle of next year. Furthermore inflation is predicted to stay below the bank’s target of 2% until at least 2014.

 

“The underlying global problems of trade imbalances, unsustainable levels of external and internal indebtedness and loss of competitiveness remain”, said Governor Mervyn King. “The journey to a more balanced world economy will be long and arduous. The immediate impact of the decline in sentiment is that the outlook for growth of the world economy has worsened since August. That is also true here in the United Kingdom, where activity could be broadly flat until around the middle of next year. We continue to face a difficult economic environment."

 

The prospect of low growth and inflation is expected to reduce the pressure on the Bank of England’s Monetary Policy Committee to raise the bank base rate. Whilst the bank predicts growth would return to more than 2.5% by 2013 and 3% by 2014, some experts predict a more prolonged period of low growth which will keep base rates below 1% over the next couple of years and under 3% for a decade.

 

Source: Guardian News and Media Limited

 

For more information: Bank of England Inflation Report November 2011