Bank: UK output could shrink again

First published in National © by

Bank of England governor Sir Mervyn King has warned that UK output may shrink again as the economy continues its "zig-zag" recovery.

Presenting the Bank's quarterly inflation report, Sir Mervyn said GDP could decline in the final three months of this year after a return to growth in the third quarter gave an "overly optimistic impression".

The Bank downgraded its growth forecast for 2013 to around 1% as it warned output will remain below pre-financial crisis levels for the next three years. It also revised its inflation forecast, with the rate expected to fall towards the 2% target in the second half of next year, later than previously thought.

The economy grew 1% between July and September, bringing the longest double-dip recession since the 1950s to an end. But economists have warned this was largely influenced by one-off factors and the underlying picture remains weak.

In its report, the Bank said the economy is likely to see a "sustained, but slow" recovery and that the growth will remain below its historical average until mid 2015.

Sir Mervyn said: "Output grew strongly in the third quarter. Welcome as that is, it is not a reliable guide to the future. Just as growth in the second quarter was depressed by one-off factors and gave a misleadingly weak picture of the economy, so growth in the third quarter has been boosted by one-off factors and gives an overly optimistic impression of the underlying trend.

"Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in the fourth quarter as the boost from the Olympics in the summer is reversed - indeed output may shrink a little this quarter."

The Bank's report said: "The economy is likely to see a sustained, but slow, recovery over the next three years."

It ruled out a rapid pick-up in growth, adding: "GDP growth is more likely to be below than above its historical average rate over the entire forecast period. Output is more likely than not to remain below its pre-crisis level until towards the end of the forecast period."

The Bank said the outlook for UK growth remains uncertain with the problems in the eurozone still remaining a major threat to the recovery. The pace of the recovery will also depend on the extent to which recent reductions in bank industry funding costs spur an increase in lending, the Bank said.

Comments (1)

Please log in to enable comment sorting

11:21am Wed 14 Nov 12

Nebs says...

For the average worker this has not been a double dip recession, nor a zig zag recovery. It has been one long recession with no light at the end of the tunnel.
For the average worker this has not been a double dip recession, nor a zig zag recovery. It has been one long recession with no light at the end of the tunnel. Nebs
  • Score: 0
Post a comment

Remember you are personally responsible for what you post on this site and must abide by our site terms. Do not post anything that is false, abusive or malicious. If you wish to complain, please use the ‘report this post’ link.

Send us your news, pictures and videos

Most read stories

Local Info

Enter your postcode, town or place name

About cookies

We want you to enjoy your visit to our website. That's why we use cookies to enhance your experience. By staying on our website you agree to our use of cookies. Find out more about the cookies we use.

I agree