Bank of England slashes growth forecast
Bank of England slashes growth forecast

Britain may be rolling in gold at the Olympics but the Bank of England has slashed its forecast for growth this year in recession-affected Britain to close to zero per cent.

The bank says the greatest threat to recovery comes from the eurozone crisis.

Britain's gross domestic product was predicted to be almost flat in 2012, down from the central bank's previous forecast of just below 1.0 per cent, according to a chart contained in the BoE's latest quarterly report.

The British pound and London's FTSE 100 shares index were little changed on the news as the revision had been widely expected by traders.

Analysts said the outlook signalled further cash stimulus from the BoE was on the horizon as well as possibly a cut to the BoE's main lending rate - to near zero per cent - before the end of 2012.

"The outlook for UK growth remains unusually uncertain," the central bank said in the report.

"The greatest threat to the recovery stems from the risk that an effective policy response is not implemented sufficiently promptly in the euro area to ensure that the adjustments in the level of debt and competitiveness required by some member countries occur in an orderly manner.

"Even if an effective set of policies is implemented, the scale of the necessary adjustments points to a sustained period of sluggish euro-area growth and heightened uncertainty," it added.

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

The BoE added that fiscal consolidation and tight domestic credit conditions were also "likely to continue to weigh on demand".

Britain escaped a deep downturn in late 2009 but fell back into recession at the end of 2011. Latest official data shows that its GDP slumped 0.7 per cent between April and June from the first three months of this year.

The Bank of England last week voted to keep its main interest rate at a record low 0.50 per cent and maintain its level of cash stimulus at STG375 billion ($A558.53 billion) despite a deepening recession.

The BoE on Wednesday also forecast that Britain's economy was set to grow by about 2 per cent in 2013.

"In the near term, growth is subdued but further out the economy gradually strengthens, as some of the recent headwinds abate and the stimulus policy announcements take effect," BoE Governor Mervyn King told a press conference.

The BoE's report meanwhile added that it expected British inflation to fall to the central bank's 2 per cent target rate by the end of this year.

Barclays analyst Simon Hayes said following the report that another STG50 billion of cash stimulus was likely in November, while there could also be a quarter point cut in interest rates.

The West Australian

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