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| Version 2 | Version 3 |
|---|---|
| Bank says UK already in recession | Bank says UK already in recession |
| (20 minutes later) | |
| The Bank of England says the UK entered a recession in the middle of 2008 which will continue well into 2009. | The Bank of England says the UK entered a recession in the middle of 2008 which will continue well into 2009. |
| In its quarterly inflation report, the Bank warns that the economic landscape has changed dramatically since August. | In its quarterly inflation report, the Bank warns that the economic landscape has changed dramatically since August. |
| It now expects inflation to decline to 1% by 2010, below its 2% target, in a dramatic change to its last forecast. | It now expects inflation to decline to 1% by 2010, below its 2% target, in a dramatic change to its last forecast. |
| This could open the way for further interest rate cuts if the Bank is to maintain inflation at its target rate in two years' time. | This could open the way for further interest rate cuts if the Bank is to maintain inflation at its target rate in two years' time. |
| "We are certainly prepared to cut bank rate again if that becomes necessary," said Mervyn King, the Bank of England's governor. | "We are certainly prepared to cut bank rate again if that becomes necessary," said Mervyn King, the Bank of England's governor. |
| Instability in banking and financial markets intensified to levels not seen for almost a century Bank of England Inflation Report | Instability in banking and financial markets intensified to levels not seen for almost a century Bank of England Inflation Report |
| The Bank of England's central projection is for the economy to contract by 2% by early next year - although this may change if the government introduces further fiscal stimulus to the economy. | The Bank of England's central projection is for the economy to contract by 2% by early next year - although this may change if the government introduces further fiscal stimulus to the economy. |
| In August, the Bank forecast "broadly flat" economic growth. | In August, the Bank forecast "broadly flat" economic growth. |
| Ross Walker of the Royal Bank of Scotland told the BBC that markets were surprised by how big a fall in inflation the Bank of England had projected, and said he now expected another rate cut in December of at least 0.5%. | |
| "Conditions are going to get worse before they get better," he added. | "Conditions are going to get worse before they get better," he added. |
| Financial crisis | Financial crisis |
| The governor said that "we have seen the biggest banking crisis since World War I", coupled with a dramatic fall in business and consumer confidence, and very sharp drops in commodity prices. | The governor said that "we have seen the biggest banking crisis since World War I", coupled with a dramatic fall in business and consumer confidence, and very sharp drops in commodity prices. |
| In its inflation report, the Bank says: "The process of financial sector consolidation and balance sheet adjustment became increasingly disorderly. Concerns about banks' solvency and strains in global money markets reached unprecedented levels." | In its inflation report, the Bank says: "The process of financial sector consolidation and balance sheet adjustment became increasingly disorderly. Concerns about banks' solvency and strains in global money markets reached unprecedented levels." |
| Mr King said that the Bank had acted to cut rates so sharply "because the facts had changed" and rejected criticism that it was caught unawares by the crisis. | Mr King said that the Bank had acted to cut rates so sharply "because the facts had changed" and rejected criticism that it was caught unawares by the crisis. |
| Markets are expecting rates to go below 2% within a year, the lowest Bank of England interest rate since it was set up in 1694. | Markets are expecting rates to go below 2% within a year, the lowest Bank of England interest rate since it was set up in 1694. |
| And the governor admitted that Retail Price Index inflation, which includes housing costs, could actually become negative as interest rates fell. | And the governor admitted that Retail Price Index inflation, which includes housing costs, could actually become negative as interest rates fell. |
| A long recession? | A long recession? |
| Deputy governor Charles Bean said that the contraction in the UK economy would be broadly similar to the declines seen in Sweden, Finland and Norway in the 1990s, which were deep but relatively short-lived. | Deputy governor Charles Bean said that the contraction in the UK economy would be broadly similar to the declines seen in Sweden, Finland and Norway in the 1990s, which were deep but relatively short-lived. |
| He pointed out that the early moves to recapitalise the banking sector should help limit the depth of the recession - in contrast to the situation in Japan, where a slow response from government extended the recession. | He pointed out that the early moves to recapitalise the banking sector should help limit the depth of the recession - in contrast to the situation in Japan, where a slow response from government extended the recession. |
| He also said that the 20% devaluation of sterling could help boost exports and pull the economy out of recession. | He also said that the 20% devaluation of sterling could help boost exports and pull the economy out of recession. |
| The governor, however, pointed out that too great a fall in the value of the pound could lead to further inflation in the future. | The governor, however, pointed out that too great a fall in the value of the pound could lead to further inflation in the future. |
| Fiscal stimulus | Fiscal stimulus |
| Mr King said that there was a stronger argument for fiscal stimulus than previously, because the banking crisis had meant that monetary policy was less likely to be effective. | Mr King said that there was a stronger argument for fiscal stimulus than previously, because the banking crisis had meant that monetary policy was less likely to be effective. |
| But he warned that any short-term fiscal stimulus had to be consistent with the long-term path of fiscal discipline. | But he warned that any short-term fiscal stimulus had to be consistent with the long-term path of fiscal discipline. |
| Otherwise, he warned, long-term interest rates would rise, undoing some of the effects of any economic boost. | Otherwise, he warned, long-term interest rates would rise, undoing some of the effects of any economic boost. |
| International agreement | International agreement |
| Mr King said that a new international agreement on regulating the world financial system was important for a long-term resolution of the crisis. | Mr King said that a new international agreement on regulating the world financial system was important for a long-term resolution of the crisis. |
| He said that he was hopeful that the meeting of world leaders in Washington at the weekend could make a useful start on a "process of reform" that would take some months. | He said that he was hopeful that the meeting of world leaders in Washington at the weekend could make a useful start on a "process of reform" that would take some months. |
| The governor said that the objective should be to ensure that countries which had capital surpluses, such as China, also had an obligation to take action to correct financial imbalances. | The governor said that the objective should be to ensure that countries which had capital surpluses, such as China, also had an obligation to take action to correct financial imbalances. |
| And he added that this was exactly the problem that the economist John Maynard Keynes had identified when the system of international financial rules were set up in 1944 at Bretton Woods. | And he added that this was exactly the problem that the economist John Maynard Keynes had identified when the system of international financial rules were set up in 1944 at Bretton Woods. |