The latest quarterly inflation report from the Bank of England forecasts a return to the average lon...
The latest quarterly inflation report from the Bank of England forecasts a return to the average long-term GDP growth trend in the next 12-18 months as the UK economy continues to recover.
However, governor Mervyn King says he will not commit to a specific growth figure target that he expects the economy to hit by the end of this year and next year.
The recovery will not take place quickly. European growth remains especially weak and although US growth picked up in the second quarter, it still remains below the long-term average trend.
UK growth will be supported by continued strong public spending along with resilient consumer spending, the Bank says.
Inflation is predicted to fall below the Bank's 2.5% long-term target next year, as short-term inflationary pressures ease, before the effects of a weaker pound feed through to push prices up across the board.
One of the limits on price increases will be household debt.
Mervyn King says that high levels of household debt will be more difficult to clear in the forecast low inflation rate environment than when inflation rates are higher.
Also anchoring the ability of producers to increase prices is the below trend rate of business investment, with companies hesitant to commit to additional expenditure while current facilities remain under-utilised and the strength of export markets remains subdued.
"The broad picture remains one of moderate growth in consumer spending, accompanied by strong growth in public expenditure, a gradual improvement in the contribution of net trade and a modest increase in business investment. Overall, the outlook for GDP growth is similar to that expected in May, though the pick-up occurs a little later and growth is slightly lower during the second year of the projection," the report concludes.
‘In the know’
Owen to pay £3m
Lasting power of attorney
Three risk profiles
Caused by falling oil price