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
    +51

    Comment number 222.

    Reclaim our manufacturing , stop relying on service industries along, cut down what we get from the Far East.

    For us buy British food and goods where you can and ensure that we have a mentality like the French i.e. All for one and one for us. Sarkosi would never survive if he didn't act like this...!

  • rate this
    +27

    Comment number 221.

    Don't panic, don't panic, Dave has a cunning plan that the private sector is going to create three million jobs. Right, now has anyone seen my talking unicorn?

  • rate this
    +11

    Comment number 220.

    For what its worth I believe the encouragement to obtain a university degree in the 1960s onwards and the introduction of "mickey mouse" degrees leading to the expectation of "fast tracking" has caused most of our problems.
    The number of irresponsible high-flyers with a "first" in PPE infesting our Parliament is testament to this. The most pernicious one though was a PhD in history aided by a PPE.

  • rate this
    +2

    Comment number 219.

    Thank you PaulattheRocks for suggesting a rise in interest rates. With lots of hard working families struggling to stretch their household income to meet the increased costs of petrol / food / utility bills etc I'm sure an increase in their mortgage payments would be really welcome!

  • rate this
    +5

    Comment number 218.

    We don't need infrastructure projects at the moment. Infrastructure projects can only be done by borrowing more money we haven't got. You don't create jobs. You create a way of paying higher dole that resembles real work, like jobs in the Defence industry. Money can only be made from products, physical or services.
    Infrastructure workers only pay tax on tax payers money they have been paid.

  • rate this
    +14

    Comment number 217.

    Perhaps Mr King has got indigestion after the taxpayer provided such a delicious dinner at the Lord Mayors banquet. I have long since ceased to take any notice of this man or his wealthy associates and his depressing forcasts. As for the horrifying unemployment figures especially for the under 24 year olds I find it extraordinary the bankers chums MPs didnt find it necessary to convene Parliament?

  • rate this
    -6

    Comment number 216.

    I'm hoping the inevitable economic collapse comes sooner rather than later so we can start making progress on building a society and economy fit for the 21st century. The government are impotent in the face of the problems we face and too hubristic to listen to alternatives. Hopefully the next government will be by and for the people rather than utopian zealots sabotaging a generation.

  • rate this
    +2

    Comment number 215.

    All i can say here is things very rarely get better for the working classes compared to the rich the rich will never suffer from the same increases in VAT, or fuel hikes, or food going thru the roof ,house prices well beyond the reach of many unless they get in debt in other ways to fund the house the rich will never rely on benefits that are pathetic to the people who need them genuinely

  • rate this
    +62

    Comment number 214.

    There is concern that the economy is going to stagnate - why? It is inevitable that this HAS to happen. It is impossible for continual growth with limited in resources i.e.the planet. All the effort being expended is just try to make sure it has the least effect on us now no matter the cost for future generations. Time for politicians and businesses to stop thinking in the short term

  • rate this
    +51

    Comment number 213.

    I am not a financier but I think that a lot of people can see what is happening.
    Almost all jobs are being outsourced to China or India, raising unemployment in EU and UK. Goods are no longer made here but are imported, causing DEFICIT in Trade Balance.
    No money left -worse a black $$$ hole- and everything has been sold.

  • rate this
    0

    Comment number 212.

    oy, oy mods

    a minute ago the 'smoking' thread was having difficulties? - now its suddenly closed?

    so much for our freedom of speech to keep you muppets in a job!

  • rate this
    +12

    Comment number 211.

    You quote numbers of unemployed people. Presumably, these figures are taken from benefits statistics. The real number of unemployed people is probably very much higher. Take into account those attempting to claim benefit but are being refused benefit because they have made mistakes in procedures, or on their claim forms, or they may not of managed to apply for the 'three jobs per week'.

  • rate this
    +2

    Comment number 210.

    Mervyn King - Who on earth listens to this man! Isn't he the man who promoted a completely different economic policy in the 80's? Isn't he the man who predicted 3m unemployed by 2009? Isn't he the man who predicted a 40% drop in house prices in a year in 2008? He's never got any of his 'predictions' even close to right. The man does not have the mental acumen to make these 'predictions'.

  • rate this
    +7

    Comment number 209.

    This is not the fault of just one goverment. Over the decades prosperity in the UK has dewindle leading to deperived areas and the lack of job prospects for all. At the core of the world's problems today is money. You can all most say goverments are riding the surf and the Economy is the wave, but for how long this will last no one really knows. There is no fix for all this just sticky tape.

  • rate this
    +4

    Comment number 208.

    The UK and Europe as a whole have been regulating and legislating themselves out of competitiveness. Jobs have been moving to less regulated economies with lower or no minimum wage legislation and other red tape. No matter how good the intentions of European governments may be, in the long run they are shooting themselves in the foot by trying to be "fair" and protecting workers rights etc.

  • rate this
    +18

    Comment number 207.

    2.6 million out of work and we still let people in to the country

  • rate this
    +11

    Comment number 206.

    Unemployment and inflation is always high when the Tories are in power.
    If you need proof check out the 80's and the 90's.
    Plus it is never their fault.Check out who destroyed all our Industries.

  • rate this
    +4

    Comment number 205.

    We all know there is bad news around but must the news organisations, with glee, and particularly the BBC, constantly rub our noses in it. Constant negativity in the press and media is corrosive and rubs off onto the populous - is there any wonder we are all totally hacked off. My advice to young people is to go abroad travelling, leave the UK to it.

  • rate this
    +2

    Comment number 204.

    Well I guess the smoking in the car ban is off, if the public secotr want the tax take from smoking and cars. Heh!

  • rate this
    +2

    Comment number 203.

    Where has this 'Eastern Economic Utopia' come from?
    The US economy is still almost twice as big as China and India combined.
    China and India have very high rates of extreme poverty, yes they have grown hugely but these are the two largest populated countries in the world.
    What is concerning markets is the levels of Net Debt held, China is cash rich, the US is in debt, but has been since 1980!

 

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