The governor of the Bank of England, Mervyn King, has warned that the UK economy faces a “choppy recovery” over the next two years. His comments came as the Bank lowered its economic growth forecast and said inflation would stay higher for longer than previously forecast.
They suggested numerous reasons for this but highlighted that a lack of bank lending would greatly limit economic growth. “It will take many years before bank balance sheets and fiscal positions return to anything like normal,” said Mr King.
The Bank said the key issue behind its prediction that inflation would remain higher than previously forecast was the government’s decision to raise VAT to 20% from 17.5% at the start of next year.
Hugh Pym, BBC chief economics correspondent commented that the Bank’s warning that the UK faces a difficult economic recovery could increase fears of a double dip recession. However, the Bank’s own projections say this remains highly unlikely.
