This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.guardian.co.uk/business/2013/feb/13/uk-low-gdp-growth-bank-england-inflation

The article has changed 4 times. There is an RSS feed of changes available.

Version 1 Version 2
UK set for low GDP growth for at least two years, Bank of England warns UK set for low GDP growth for at least two years, Bank of England warns
(about 11 hours later)
Britain will suffer low growth and a squeeze on average incomes for at least another two years, the Bank of England warned on Wednesday, signalling that the economy will remain weak until the next election.Britain will suffer low growth and a squeeze on average incomes for at least another two years, the Bank of England warned on Wednesday, signalling that the economy will remain weak until the next election.
Inflation will remain above the central bank's 2% target until at least the end of 2015, peaking at 3.2% in the second half of this year, it said. Growth, which is not expected to get above 1% this year, will fail to gain any momentum until 2015 when the economy will regain the size it last achieved in 2007. The Bank's governor, Sir Mervyn King, put the institution on a collision course with the Treasury after he blamed the government for pushing inflation above its 2% target for the fourth consecutive year and warned that growth in the economy would not gain momentum until 2015.
The Bank of England governor, Sir Mervyn King, insisted a "recovery is in sight" but warned the path ahead for the UK economy will not be smooth in part because there are limits to what more economic stimulus can achieve. King accused the chancellor, George Osborne, of scoring "an own goal" following steep rises in university tuition fees and hikes in energy bills linked to green subsidies, which pushed up inflation by at least one percentage point.
Nevertheless, he said the central bank remained ready to do more to help the economy if needed. The outgoing governor said inflation would be higher than expected as a result of "administrative decisions" and made the monetary policy committee's job of hitting the 2% benchmark much harder.
Treasury sources said it was unfair of the governor to blame the government when it had made every effort to limit price rises in key areas, including freezing fuel duty and council tax.
King made his comments as he delivered the bank's quarterly inflation report, which predicted inflation would remain above the central bank's 2% target until at least the end of 2015, peaking at 3.2% in the second half of this year, from 2.7% currently. With wage rises regularly averaging less than 2%, household incomes are likely to remain under pressure. The economy will regain the size it last achieved in 2007 as growth is not expected to get above 1% this year.
Sterling tumbled on the gloomy outlook and the prospect that the Bank's monetary policy committee, ignoring recent good news from higher construction output, will inject more funds into the economy through quantative easing – where the Bank enters the market to buy UK government debt. The pound fell to $1.55, down a cent on the previous day.
Lord Oakeshott, a former Liberal Democrat Treasury spokesman, said King's intervention amounted to an attack on the government's economic strategy.
"The governor is blaming the chancellor for pushing up prices and blowing the MPC off course, which is unprecedentedly direct criticism of the government by a serving governor."
King insisted a "recovery is in sight", but warned the path ahead for the UK economy would not be smooth, in part because there were limits to what more economic stimulus could achieve.
Nevertheless, he said, the central bank remained ready to do more to help the economy if needed.
"We must recognise there are limits to what can be achieved via general monetary stimulus – in any form – on its own," he said."We must recognise there are limits to what can be achieved via general monetary stimulus – in any form – on its own," he said.
Sterling tumbled on the gloomy outlook for the UK and the prospect that the Bank's monetary policy committee, ignoring recent good news from higher construction output, will inject more funds into the economy. The pound fell to $1.55, down a cent on the previous day. Business leaders responded to the inflation report with demands that Osborne, who is preparing his March budget, boost infrastructure spending to generate high quality jobs and spur growth.
The governor appeared baffled that ministers had sanctioned large investments in green energy through higher prices and the near trebling of university fees, which raised inflation and made the MPC's job harder. The Confederation of British Industry, which represents thousands of the UK's biggest private sector employers, warned that without a push from the Treasury the economy would continue to crawl out of recession.
King said it was "an own goal" by the government, though he assumed they had taken the impact on inflation into account when they agreed the policies. CBI boss John Cridland said: "We've called for the government to boost capital spending by digging a bit deeper on current expenditure, and to get investment spending flowing in the short term, for example on much-needed repair and maintenance of the roads system."
His comments came as official figures showed that low wages and high inflation over recent years have badly hit household incomes. Labour said the prospect of low growth and falling real wages at least until the next general election showed the government's economic policies had failed.
The Office for National Statistics said the real value of average earnings has fallen back to 2003 levels after 30 years of strong growth. Official figures showed that low wages and high inflation over recent years have badly hit household incomes. The Office for National Statistics said the real value of average earnings has fallen back to 2003 levels after 30 years of strong growth. It said new research had revealed average earnings peaked in 2009, but since then wage increases had been outstripped by inflation. Wage growth is currently running at 1.8% a year, though some areas of the economy remain buoyant.
It said new research has revealed average earnings peaked in 2009, but since then wage increases have been outstripped by inflation. Wages are currently running at 1.8% a year, though some areas of the economy remain buoyant. The ONS said the economy was no larger than it was in 2005 after growth, which began to rise in the latter part of 2009 and the first half of 2010, flat-lined.
The ONS said the economy is no larger than it was in 2005 after growth, which began to rise in the latter part of 2009 and the first half of 2010, flatlined.
The Bank of England is under pressure from monetarist economists to bring down inflation by raising interest rates to allow a period of real wages growth. Some economists believe that only with higher consumer demand will the economy regain its previous momentum.
Challenging this view are economists who argue the central bank should inject more money into the economy to improve lending conditions.
The incoming governor, Mark Carney, hinted last week that he may press for the bank to be more aggressive in its attempts to boost growth.
King said the MPC was committed to "looking through" the current high inflation because some of the rise came from one-off factors, such as the near trebling in university tuition fees, and the risk that higher interest rates would crash the economy and push inflation below its target.King said the MPC was committed to "looking through" the current high inflation because some of the rise came from one-off factors, such as the near trebling in university tuition fees, and the risk that higher interest rates would crash the economy and push inflation below its target.
"Attempting to bring inflation back to target sooner would risk derailing the recovery and undershooting the target in the medium term," he said."Attempting to bring inflation back to target sooner would risk derailing the recovery and undershooting the target in the medium term," he said.
The central bank has spent £375bn on buying government bonds but has held off from increasing the programme. The bank has spent £375bn on buying government bonds but has held off from increasing the programme. The incoming governor, Mark Carney, hinted last week he may press for the bank to be more aggressive in attempts to boost growth.