Bank of England and CBI expect modest recovery for UK economy

Bank of England

Predictions continue to be made about the prospects for the UK economy in 2013 and beyond. Today, the Bank of England and business organisation the CBI set out cautiously optimistic expectations for the next two years.

Presenting the Bank of England’s latest quarterly inflation report, governor Sir Mervyn King claimed that the UK economy has “cause for optimism.” Although growth is likely to be weak in the near term, further ahead a “slow but steady recovery in output” is anticipated. This will be underpinned by a continued easing in domestic credit conditions, supported by the central bank’s asset purchase programme and the Funding for Lending Scheme, together with stronger conditions globally.

The inflation rate has remained stubbornly above the Bank’s target of 2% and currently stands at 2.7%. According to the inflation report it is now expected to rise to at least 3% by the summer and to remain above 2% for the next two years.

In its last report in November the Bank said that it expected inflation to fall back towards the 2% target in the second half of 2013.

Sir Mervyn pointed out that that external factors including increases in university tuition fees and utility bills had contributed to inflation recently.

Separately, the CBI revealed today that it expects the UK economy to grow by 1% in 2013 and by 2% in 2014. Its GDP forecast for this year has been lowered from the previous estimate of 1.4%, reflecting the weaker-than-expected growth rate in the fourth quarter of 2012.

CBI director-general John Cridland said that there are signs of a return of organic growth, with firms that are offering the right products in the right markets managing to grow their sales and expand their business.

He warned, however, that external risks to the outlook remain, in the eurozone and further afield.

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