Bank of England sees 'worsened' economic outlook

 

Sir Mervyn King: ''The journey to a more balanced world economy will be long and arduous''

The UK's economic outlook has worsened and the economy could stagnate until the middle of next year, the governor of the Bank of England has said.

Sir Mervyn King also said that the eurozone debt crisis was the "single biggest risk" to the UK.

The Bank has cut its 2011 and 2012 growth predictions to about 1%.

It came as the UK unemployment total rose by 129,000 in the three months to September to 2.62 million, with youth unemployment above one million.

The unemployment total was the largest since 1994, and the unemployment rate rose to 8.3%, the highest since 1996.

Activity 'broadly flat'

Delivering the Bank's latest quarterly inflation report, Sir Mervyn said that the UK's economic problems were shared by other countries.

He said: "The immediate impact of the decline in sentiment is that the outlook for growth for the world economy has worsened since August.

"This is also true here in the United Kingdom, where activity could be broadly flat until the middle of next year."

The latest inflation figures showed that rate of Consumer Prices Index (CPI) inflation in the UK fell slightly to 5% during October, down from a rate of 5.2% the month before.

Sir Mervyn said inflation had peaked and was likely to fall sharply over the next few years.

Tough path ahead

The latest jobless figures showed that the number of unemployed 16 to 24-year-olds had broken the one-million barrier, rising to 1.016 million, according to the Office for National Statistics (ONS).

Unemployment chart

The data also showed that the number of women out of work increased by 43,000 to 1.09 million, the highest level since February 1988.

The number of unemployed people rose in every part of the UK, except for the East Midlands, where it remained unchanged, and the North West and Northern Ireland, where the number of unemployed fell.

The unemployment rate was highest in the North East, at 11.6%.

The ONS provided a regional breakdown for jobless figures around the country.

In addition to rising unemployment, Sir Mervyn said the problems surrounding the eurozone countries would continue to affect the UK, adding that the "uncertainty" would have "some potential impact" on business investment and household spending.

"Since August, difficulties in Europe have continued to dominate. The worsening global problems, imbalances and less competitiveness remain," he said.

Start Quote

The new UK growth forecasts look as grim as expected”

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"The move towards a more balanced economy is going to be long and arduous."

But the governor added real take-home pay should slowly start to increase next year.

City analysts said that both lower growth and inflation forecasts showed the Bank would leave interest rates at the low level of 0.5% into 2013.

"The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed," said Vicky Redwood, chief UK economist at Capital Economics.

Eurozone funding

Regarding the current eurozone debt crisis, Sir Mervyn also gave support for the European Central Bank's (ECB) reluctance to bail out "deficit" countries in the eurozone, such as Italy and Spain, which are having growing difficulties borrowing from the private sector.

He said that the stronger eurozone governments needed to lend in a visible way to the weaker countries, rather than finance coming through the ECB.

BBC business editor Robert Peston said Sir Mervyn's comments may have killed off the idea that the ECB could become a so-called lender of last resort to governments experiencing funding difficulties.

"What the governor of the Bank of England has to say about the eurozone's crisis will resonate, simply because he is one of the big global figures in central banking," he said.

 

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  • rate this
    -22

    Comment number 202.

    True capitalism works but not the watered down socialist version the UK has.

    Gov't must shrink to a fraction of it's current size. Cut out the cancer that is the NHS & welfare state.

    Encourage hard work & industry. Ban strikes and the unions. Give power back to the markets!

    Then the UK will prosper!

  • rate this
    +4

    Comment number 201.

    190.Popsey
    Just now


    ==========

    And the jobs that the youth used to do have all been out sourced by business for profit

    no jobs left - move on

  • rate this
    +2

    Comment number 200.

    So [160.Tom] let me get this right you don't think the government has to borrow more if the unemployment figures keep rising sharply. There is a relationship between that and government borrowing figures too ya know! Unless you want us to go back to the Tudor poor laws ofc.

  • rate this
    +1

    Comment number 199.

    @rikcougar
    7 Minutes ago
    "... another banker ..When are we going to take control of the banks and end this madness".

    A bit of an idiotic comment - central banks are institutions designed to reign in banks according to the economic cycle. Central bankers work at central banks. They are not the same as the 'bankers' you are alluding to.

  • rate this
    -1

    Comment number 198.

    This mess is the fault of BOTH labour and conservative governments. Both Labour and conservative governments are always cleaning up each others messes.

    This will happen indefinitely until we get a chancellor and PM that have numerate maths and science backgrounds. If one can't pass an A-level maths paper at any moment then one should not be chancellor.
    We need maths and science exams for MP's.

  • rate this
    0

    Comment number 197.

    @173



    ...OK, would you please explain how will this work...?

  • rate this
    +4

    Comment number 196.

    I can't see it getting any better, last time the tories were in we had over 3m unemployed I expect it to get closer to 4m by the time they are done.

    That is their ethos, they never change, just like labour never stop spending.

    Depend which ones you want in power??

  • rate this
    +3

    Comment number 195.

    I suspect a significant factor in the lack of increase in growth is nothing to do with investment in the private sector, rather it is a lack of demand caused by taking out public sector jobs and increasing their pension contributions (less disposable income = less discretionary spending by households). Surely the Government must have known that would happen! Current policies are not working.

  • rate this
    0

    Comment number 194.

    so the condems are blaming the eurozone now for the high unemployment figures!
    it gets better by the day, what a bunch of muppets

  • rate this
    +4

    Comment number 193.

    and our goverment has the nerve to tell other countries to improve theri prospects, at least they have some prospect which more than we have

  • rate this
    -1

    Comment number 192.

    After the collapse - a low spend, low tax, business friendly economic framewok please. Sound money and minimal interference in commercial activity.
    Education based on merit and bent towards BRIC and developing world languages.science and commerce.
    Free trade with everyone and a new hard headed attitude which says everything has to pay its way.
    Do this and we will rise from the ashes.

  • rate this
    -44

    Comment number 191.

    A big problem is a lack of work ethic & community spirit. Lots of people are out for what they can get & to do as little as possible to get it. If we didn't have benefit cheats etc we would be in a far stronger position. It's the responsibility of us all to move the country forward. Lots of people live on credit as they want it all now, then blame others for their mess. We need to help ourselves.

  • rate this
    +4

    Comment number 190.

    The jobs that our youth use to do are now being done by immigrants! The jobs that the youth use to cut their teeth on are now being done by immigrant adults.
    No one really knows how many eastern europeans are in the UK, but take a walk to your local coffee shop or building site and I think you will find the answer to the question.

  • rate this
    +21

    Comment number 189.

    It seems to me that in the many good years since the war the vast majority of our population has lost sight of economic reality, that you need to be able to pay for what you spend, and you need to be able to pay back money you borrow. Things were OK until the globalised world exposed the weaknesses of the "growth from borrowing" that our previous governements did so much of.

  • rate this
    +1

    Comment number 188.

    The EU figures for unemployment are quite high, and with austerity measures, likely to get higher. This will suggest lower demand, exacerbating a decline or even another recession.
    EU could drag UK down with it if UK is RIGIDLY tied into their economics.
    EU is already trying to "Tax London", by a financial transaction tax on EU members, and today Germany has rebuked UK over Tobin tax opposition.

  • rate this
    +4

    Comment number 187.

    There must be some mistake, we have a generation of graduates who are self funding their degrees on the understanding that they will get better jobs. Now I fully trust that these "better jobs" have been created to honour this promise. We must have simply mislaid them. Once found the economic outlook will be bright again and unemployment will be a thing of the past.

  • rate this
    +3

    Comment number 186.

    @152 Nick Burks.
    So, if I criticise the government I must be left wing and vote Labour? That speaks volumes. Yes, the Eurozone does impact on our economy, after all 40% of our exports are to Europe. Cutting debt is the only policy the coalition seem to have - we need exports (see recent balance of trade). Cutting jobs does nothing to help the situation, it depresses our economy.

  • rate this
    +6

    Comment number 185.

    @ Andy_Pandy1968, #96;

    "Labour spent money that didn’t exist for Political gain.

    They should be on trial with the bankers!"


    Agreed. But then, if 'spending money that doesn't exist' is a crime then we would have to put just every single business - and most individuals - in the country in the dock, too.

    At the end of the day, it's The System that's the problem.

  • rate this
    -14

    Comment number 184.

    The rating system seems odd. An up arrow for low rating and a down arrow for high rating. Confusing for some?

  • rate this
    +4

    Comment number 183.

    I know unemployment is a lagging indicator of the economy but turn the graphs upside down and it shows a dip then another dip. A Blue Peter badge to the first politician brave/stupid enough to admit the double dip recession.

 

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