By Dan Atkinson
PUBLISHED: 16:08 EST, 4 August 2012 | UPDATED: 02:55 EST, 5 August 2012
The Bank of England will this week join the ranks of forecasters who have cut their outlook for the British economy, with many analysts expecting the Bank to predict zero growth for 2012.
The shock 0.7 per cent collapse of gross domestic product in the second quarter, coming after a 0.3 per cent decline in the first quarter and mounting fears about performance in the current quarter, seem sure to force the Bank to abandon its existing forecasts, published in May.
The Bank then was looking for 0.5 per cent growth this year and 2.1 per cent next year. Now it is thought that the 2012 forecast will be close to no growth, with the 2013 estimate cut back to about 1.6 per cent.
British economy: It is thought that the Bank of England's 2012 forecast will be close to no growth
Even this figure would be ominous, being
below the two per cent annual growth thought necessary to stave off a
rise in unemployment.
‘The May figures did not always
appear so over-optimistic,’ said Ross Walker, economist at Royal Bank of
Scotland. ‘But the Bank seems to have had a tendency over time to
assume official growth numbers will always be revised up, and this has
not been the case recently.’
The new growth figures will come in the Bank’s quarterly inflation report, to be published on Wednesday.
The great recession: How does the current slump compare with previous recessions?
Last week, it announced that the nine
members of the Monetary Policy Committee would leave the base rate and
its quantitative easing money creation programme unchanged – for now.
What next for rates?
The dire GDP figures (25 July), which
showed Britain's recession was worsening and had extended from six
months to nine months, merely reinforced the gloom and cemented the
chances of a rate cut, writes Andrew Oxlade.
Money markets on 3 August implied rates would be cut from 0.50% to 0.25% in December and then rise back to 0.50% in January 2016. A rise to 0.75% is not forecast until October 2017 with an increase to 1% in November 2018.
That's the most dovish forecast made so far in the financial crisis, and it's a significant shift from three months ago when the predictions for a rise to 0.75% was 'mid-2014' .
market has only recently priced in that rates would fall before rising.
Minutes from the Bank of England monetary policy committee have shown
for two months that a rate cut was talked about [Read more on the June MPC discussion].
‘The Bank is going to be knocking
down its growth estimates for this year and next,’ said Peter Dixon,
strategist at Commerzbank.
Howard Archer, economist with
independent forecasting group IHS Global Insight, said: ‘The dreadful
second-quarter performance has knocked their forecast off course.
‘To be fair to the Bank, no one saw that one coming, with the Jubilee Bank Holiday being so exacerbated by the impact of the weather on construction and retailing.
‘It all leaves the door open for more quantitative easing, and there is a
growing likelihood of a cut in the base rate from its current 0.5 per
There had been hopes of a strong recovery in the third quarter, but now these are starting to fade.
Last week’s survey of purchasing managers in manufacturing industry in July showed the fastest contraction in activity in more than three years, although this was partly balanced by a somewhat brighter version of the same survey covering purchasing managers in the construction industry.
Headlines Newsview all
Amanda Holden at the centre of Twitter backlash as she sends daughter to school dressed as Pretty Woman prostitute for fancy dress day
A parenting group has slammed TV star Amanda Holden for posting a picture of her nine-year-old daughter 'dressed as a prostitute' online.The Britain's Got Talent ... Full story
Grandmother filmed confronting militants and branding them 'devils' before quoting verses in the Koran that forbid slaughter
An incredible video has emerged showing the moment an elderly woman bravely confronted two Islamic State militants, telling them their terror group is cursed and ... Full story
Jobseeker shocked to be sent rudest rejection email ever calling him an 'old, aesthetically challenged professional pr*** with no teeth'
A jobseeker was shocked after he was branded as 'irritating', 'rude' and 'obnoxious' in a cutting email accidentally sent to him by a prospective employer.James ... Full story
Rate this article
MOST POPULAR ON CAPITALBAY
A pilotless plane with a wingspan bigger than a Boeing 737 but weighing less than a car has been tested over the UK by Facebook. Founder ...
Almost 50 MPs were accused last night of claiming hundreds of thousands of pounds in expenses for renting and using hotels in London despite owning ...
It wasn’t immediately clear why we had to be at the top of the “UK’s tallest sculpture” the ArcelorMittal Orbit, a fashionable £22m Anish Kapoor ...
Naomi Klein interview: The 'No Logo' author and climate change activist talks compost, Cameron, and the irresistible humour of otters
Was there a particular event that led you to write This Changes Everything? It wasn't one particular event. Unless it was Hurricane Katrina. My last book ...
David Threlfall interview: The actor takes a forensic approach in Code of a Killer as he leaves Shameless's Frank Gallagher behind
Actor David Threlfall, who is not to be confused with actor David Thewlis ("Ask him about Anna Friel," suggested one of my colleagues), doesn't grant ...
Vilnius has been named the cheapest European city break destination, and with the Euro currently weak against the pound, British travellers can get even more ...
This is ground control to Major Tom. Or, actually, more accurately, this is Room 135 to room service. Earlier this week, I had a very quick ...
Everyday is a red-letter day in Margate. Scarlet capitals sloshed on to bashed-in brick proclaim 'DREAMLAND WELCOMES YOU'. This greeting on the side of the ...
All hospitals will provide key services seven days a week by 2020, David Cameron will pledge today, as he goes head-to-head with Labour on Ed ...
Ruth Porat’s move from Morgan Stanley to Google is a coup for the IT crowd, even if her close ties to California via her alma ...