Bank of England Forecasts Biggest Peacetime Economic Crash Since 1931

Discussion in 'Economics' started by ByLoSellHi, May 13, 2009.

  1. The link is messed up.

    Take out the space between 'daily' and 'mail' below.


    Or, click on first story on this page:


    By Sam Fleming
    Last updated at 2:23 AM on 14th May 2009

    The economy is heading for its biggest peacetime crash since 1931, Bank of England forecasts show.

    Hopes for 'green shoots' were dashed by Governor Mervyn King, who yesterday predicted economic output will slump by between 4 and 4.5 per cent this year.

    That is marginally less than the 4.6 per cent fall in gross domestic product recorded for 1931 - the worst year of the Great Depression.

    Uncertain future: Bank of England governor Mervyn King delivering his pessimistic forecast for the economy

    Any rebound from 2010 onwards will be 'protracted' and sluggish because of the continued woes of the financial sector, Mr King added.

    The public spending cuts and tax increases needed to reduce Labour's record budget deficits will also dampen the pace of recovery.

    Households will be forced to spend less and save more as unemployment increases, the Bank said in its quarterly Inflation Report.

    The report said inflation will undershoot the Bank's 2 per cent target until 2012, suggesting rates will stay at their current 0.5 per cent level.

    That will provide some relief for mortgage holders, but cause further anguish to pensioners struggling to survive on income from savings interest.

    The Bank's bleak outlook deals a new blow to Alistair Darling, whose Budget forecasts were dismissed as 'utter fantasy' last month.

    Clash: The Bank of England believes the economy will shrink significantly faster this year than Alistair Darling claimed in his Budget last month

    The Chancellor had predicted a contraction of 3.5 per cent this year, followed by growth of 1.25 per cent in 2010.

    The Bank's Monetary Policy Committee said even if there was growth in 2010, it would be no more than 1 per cent.

    The report will prove grim reading for Gordon Brown, who faces going into a General Election against the worst economic backdrop for generations.

    The latest forecast clashes with some more positive economic indicators in recent days.

    Industry data, housing market surveys and consumer confidence polls have all suggested the economy could be turning a corner.

    Rose-tinted: Alistair Darling has been repeatedly criticised for his optimistic economic forecasts

    Figures from the respected Organisation for Economic Co- operation and Development this week suggested the recession could end in August.

    Yesterday, the pound sank as traders reacted to the outlook, and the FTSE 100 index of blue- chip shares fell 94.17 points to 4331.37.

    Mr King said the Bank may have to expand its money-printing scheme, which aims to counter the risk of deflation.

    It has agreed to a £150billion ceiling for 'quantitative easing' with the Treasury, but this may have to rise.

    Jonathan Loynes of Capital Economics said: 'The clear message is that any renewed tightening of policy - be it the reversal of quantitative easing or a rise in interest rates - is a long way off.'

    Flashback: Crowds outside Downing Street in 1931 after Prime Minister Ramsay MacDonald resigned as Britain endured the worst year of the Depression

    The UK saw larger economic slumps than the Bank's forecast in both 1944 and 1945, but the figures are commonly disregarded because of the Second World War.

    Mr King did say there were some positive factors that may help Britain's economy.

    It has received an ' unprecedented' boost from lower interest rates and the Government's fiscal stimulus, he said.

    And the pound's slump of more than 20 per cent over the past year is making British exports more competitive.

    But the continuing fragility of the banking system could hamper any lending recovery.
    Mr King said: 'The economy will eventually heal, but the process may be slow.'
  2. What about the green shoots.
  3. It's not just the BoE...

    SNB's Jordan says "A severe recession is likely inevitable"