Bank of England says Britain should avoid double dip

10th November 2010, Comments 0 comments

The Bank of England forecast on Wednesday that the British economy would avoid a double-dip recession, despite the impact of the government's severe deficit-slashing austerity measures.

The central bank, releasing its key quarterly report, also warned that the outlook remained "uncertain" for inflation and economic growth, and left the door open for restarting its radical quantitative easing policy.

The BoE forecast on Wednesday that growth would be "broadly similar" to predictions in its previous August report, with the recovery peaking in the second half of 2010, before easing to an annual rate of 2.5 percent next year.

And 12-month inflation was forecast to hold above the bank's target level of 2.0 percent next year, after the looming increase in taxation on goods and services, but would fall below target from early 2012.

"The considerable stimulus from monetary policy, together with a further expansion in world demand and the past depreciation of sterling, should support recovery," the bank said in the report.

"Those factors are likely to encourage private sector spending and some rebalancing of the economy towards net trade.

"But the strength of the recovery is likely to be tempered by the fiscal consolidation and the reduced availability of credit."

The British central bank had last week held its key interest rate at a record low 0.50 percent and opted against following the US Federal Reserve with fresh injections of funds into the economy.

Back in March 2009, the BoE's Monetary Policy Committee had slashed rates to 0.50 percent -- where they have stood ever since -- and launched a radical bond-purchasing policy that was dubbed quantitative easing.

The BoE added on Wednesday that it stood ready to act amid the uncertain economic outlook, after the economy pulled out of a record-length recession late last year.

"The prospects for inflation remained highly uncertain and the committee stood ready to respond in either direction as the balance of risks evolved," the report added.

Wednesday's report comes after Britain's economy grew by a robust 0.8 percent in the third quarter, soothing fears of a second phase of recession.

The quarterly figure, which was double market expectations, was largely the result of gains in services, construction and production.

The picture of robust activity came shortly after the coalition government delivered Britain's biggest public spending cuts for decades, fanning fears that they could help push the country back into another downturn.

© 2010 AFP

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