GOVERNOR Mervyn King announced yesterday that the Bank of England has cut its growth forecast to close to zero – from the 0.8 per cent predicted in May – as the UK slump intensifies.
He was giving the Bank’s quarterly inflation report which indicated no growth for 2012, compared with two per cent predicted a year ago.
The data had fuelled anticipation for an interest rate cut, but King dismissed calls for a reduction in the near term.
Admitting that recovery hopes had consistently been dashed, King told reporters: ‘The big picture is that output’s been flat for two years, and has continually disappointed expectations of a recovery.
‘Unlike the Olympians who have thrilled us over the past fortnight, our economy has not yet reached full fitness.
‘Our efforts to bring back a rebalancing of the UK economy will require patience. The overall outlook for growth is weaker.
‘We are navigating rough waters, and storm clouds continue to roll in from the euro area.’
He said a further rate cut would damage some financial institutions, such as building societies, and therefore would be ‘more counter-productive than beneficial’.
Defending the policy of printing money, King said: ‘We’ve been very clearly focused on the need to ensure that we don’t end up in a position that did occur in the 1930s, certainly in the United States, where broad money fell away sharply.
‘The position you can see today in Greece is we are putting enough money into the economy. That is the direct aim of the asset purchase scheme.
‘I’m not going to pretend that I can predict how events in the euro area will affect demand for our exports or indeed sentiment in the real economy . . . anyone who pretends to know what’s going to happen in the euro area over the next two or three years simply is not being realistic.’
He warned: ‘The recession in the euro area is damaging demand for our exports. A black cloud of uncertainty is hanging over investment and the weakening euro is a further obstacle we need to make in our next trade position.’
Meanwhile, Eurogroup President Jean Claude Juncker stated at a German radio interview last Monday that a Greek exit from the eurozone ‘would be a manageable procedure from today’s point of view.’
Juncker is to visit Athens on 22 August to discuss the matter with the Greek three-party coalition government.
Asked if he could rule out a Greek eurozone exit, he said: ‘At least until the end of the autumn. And after that, too.’
German economy minister Philipp Rosler has already said the prospect of a Greek exit has ‘lost its terror.’
Juncker distanced himself from the German point of view despite his own remarks.
He said some German politicians might not care what happens to the ‘little people’ in Greece and that ordinary Germans ‘talk about Greece as if this were a people who cannot be respected.’
