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Britain's central bank expresses concern about the UK economy

Britain's central bank expresses concern about the UK economy

Britain's economic outlook has changed dramatically because of the ongoing crisis in financial markets and growing global inflationary pressures, a Bank of England official said Tuesday.
"A year ago, the prospect was for a modest decrease in growth, consistent with inflation staying around target" in Britain, said Rachel Lomax, the central bank's deputy governor. "Now, inflation seems set to rise sharply in the near term. And our latest central projection is for output to grow at below trend rates over the next two years."
In her speech at the Institute of Economic Affairs, Lomax said North America and Western Europe have suffered financial and banking crises before, "but not on the present global scale." In fact, she said, "This must surely be the largest ever peacetime liquidity crisis."
That problem, triggered by the slump in the U.S. housing market, and soaring oil, food and metal prices on world markets, has left central banks in countries such as Britain struggling to develop their economic outlooks and policies at a time of "some major uncertainties," she said.
"As far as the U.K. economic outlook goes, our central judgment is that financial stress will act as a significant drag on demand over the next two years," she said. "But there is a high level of uncertainty about this; and, as we now see it, the risks, as they affect output, are tilted to the downside."
The Bank of England cut official interest rates by a quarter of a percentage point to 5.25 percent in February, the second cut in three months, as it attempted to shore up confidence in Britain's slowing economy.
However, inflation is currently running at 2.2 percent, already above the government's 2 percent target, and further cuts in interest rates to boost economic growth could have the effect of increasing inflation.
Soaring energy bills and record gasoline prices threaten to see inflation, measured using the Consumer Prices Index, rise sharply.
Lomax said the outlook for Britain's economy has changed dramatically in the past year because "we are seeing some powerful global forces playing out, in financial markets, in commodity markets, and in the world's largest economies. Their impact on the UK is highly uncertain."
She said the central bank's Monetary Policy Committee will have to keep responding to two serious risks: that demand will slow too sharply and that there will be a temporary shock to inflation that will prove persistent.
Earlier Tuesday, in a speech at the Euromoney Bond Congress, Britain Treasury chief Alistair Darling warned that the global economy is facing its biggest test in more than a decade amid mounting fears of a U.S. recession.
He said Britain is facing "uncertain times," but he predicted that its resilient economy will help weather the storm.
"Here in the U.K., our economy remains strong and stable," Darling said, adding that it was the fastest growing one in Group of Seven industrialized countries last year.
"But these are uncertain times. We do not yet know the full extent of the slowdown affecting the United States," he said.


Updated : 2021-08-04 10:23 GMT+08:00