The Bank of England has warned that the UK economy could shrink in the current quarter after it cut its forecast and claimed that growth may be weaker for a long time to come as the Euro crisis continues to make a negative impact.
The Monetary Policy Committee halted expansion of its bond purchasing programme last week after officials raised doubts over the effectiveness of the programme and some highlighted the risk of increased inflation.
“The weaker gross domestic product profile reflects the judgement that the broader causes and repercussions of the financial crisis may bear down more forcefully on demand and productivity than assumed. There seems a greater risk that the UK economy may be in a period of persistent low growth.” The Bank said in its quarterly inflation report.
In its quarterly report the central banks projects that it will take until at least the third quarter of 2014 before inflation fell below its 2% target. Official data showed that inflation jumped by its highest level in a over a year rising to 2.7% in October, after a rise on university tuition fees began to make an impact. Higher utility bills over the winter are expected to see that figure rise further.
“Strains in the euro area (are) posing the greatest risk to a sustained recovery. The strength of the recovery will also depend on the vigour of any revival in productivity growth, “The Committee attaches even less weight than in August to the possibility of a rapid pick-up in growth. Indeed, GDP growth is more likely to be below than above its historical average rate over the entire forecast period, the Bank said.
As a result of the Banks gloomy report the Pound fell to a two-week low against the Euro and also fell against the US Dollar. The falls were exacerbated by the Bank’s governor, Sir Mervyn King saying that it would be hard for the UK to grow fast without further falls in the exchange rate.
The Pound to Euro exchange rate is currently trading at 1.2445
The Pound to US Dollar exchange rate is currently trading at 1.5861
The Pound to Australian Dollar exchange rate is currently trading at 1.5202
The Euro to US Dollar exchange rate is currently trading at 1.2742
The Euro to Pound exchange rate is currently trading at 0.8032
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