PreviousNext

Bank of England ¿will slash growth forecast to zero¿, say analysts

By // Money | Bank of England ¿will slash growth forecast to zero¿, say analysts
Email to a friend Plain text Print version // Font size: Decrease font Enlarge font

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

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.

How does the current slump compare with previous recessions?

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' .

The 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 cent.’

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.

Tagged : No tags for this article

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

Youngsters turning their backs on binge drinking with 40% surge in teetotal teens and students

Teenagers and young adults are turning their backs on binge drinking, dramatic new figures have revealed.The proportion of teetotal 16-to-24 year olds has rocketed by ... Full story

Talented 18-year-old pianist who had won a place at Cambridge University was killed by a train after suffering a lapse into deep depression

A gifted 18-year-old pupil who had won a place at Cambridge University was killed by a train after suffering a lapse into 'deep depression', his ... Full story

Former PE teacher, 91, becomes oldest person ever sent to prison for the first time after being found guilty of string of sex attacks on boys

A 91-year-old former teacher has become the oldest person to be sent to prison for the first time after he was jailed for carrying out ... Full story

Beauty therapist who posted dozens of weight loss selfies showing off her new slim figure on Facebook is reported for encouraging nudity

A beauty therapist who posted dozens of 'selfie' pictures of her new slimline figure on Facebook said she was shocked and upset after being reported ... Full story

Parents slam former Ofsted boss Zenna Atkins who is now chair of school governors over x-rated messages she posted on public Facebook page

Parents have slammed a former Ofsted chief who is now chairman of a school's governing board over x-rated messages she posted on Facebook.Zenna Atkins, who ... Full story

Taxpayers forked out £2,300 a month for council boss on £195,000 a year salary to drive luxury Porsche

Taxpayers paid out more than £2,300 a month for a council chief executive on a £195,000 a year salary to drive around in a luxury ... Full story

30 signs YOUR relationship has hit the comfort zone (and will go the distance)

Do you go au natural around your partner, chat to them while naked and do their laundry? You've officially hit the comfort zone.New research reveals ... Full story

Number of Muslim children in England and Wales doubles in a decade with one in 12 school pupils now brought up in Islamic home

The number of Muslim children in England and Wales has doubled in a decade, according to the most detailed study of its kind.An analysis of ... Full story

Comment on: Bank of England ¿will slash growth forecast to zero¿, say analysts

Rate this article

0

Featured author

Robert Livingston

Breaking News

David Bowie has signed up to write songs for the new musical production of SpongeBob Squarepants after becoming a huge fan of the show while watching it with his daughter

Singer said to have become a fan after watching cartoon with his daughterHe's agreed to write music alongside The Flaming Lips and Cyndi LauperBowie has ...

Care home nurse denies mishandling frail 91-year-old widow who died after suffering mysterious broken leg 

Iris Teale suffered a broken leg at the Bupa-run Aston Court care home 91-year-old was taken to hospital but died 16 days after she was admittedCarer ...

Hillsboro High School students protest over Lila Perry using girls' bathroom

Students at Hillsboro High School objected to Lila Perry, 17, using bathroomPerry started identifying as female this year, but hasn't had surgerySome students say this ...

Meet this year's Miss America contestants, including cancer survivor

Miss Oklahoma Georgia Frazier was diagnosed with cervical cancer when she was just 19 and is now dedicated to educating young women about their health and ...

Misery for Eurostar passengers after migrants climb onto roof of 186mph London-bound train in Calais 

Migrants climb on roof of London-bound Eurostar train in Calais last nightUp to four trains were delayed for several hours to allow their removal But only ...

Woman, 22, suffers cardiac arrest during breast enlargement surgery at The Cosmetic Institute

Woman rushed to hospital after complication during cosmetic surgeryPatient taken to St Vincent's Hospital emergency department in Sydney The 22-year-old woman was undergoing a breast enlargement ...

UK weather to see supertides with 10 flood warnings announced and more rain

Environment Agency and Natural Resources Wales issue 10 flood warnings and 44 flood alertsRare supertide occurs for first time in 18 years due to ...

Lost sheep with a fleece so overgrown she can't see out of her eyes found wandering in the bush outside Canberra

A sheep with a giant overgrown coat of wool was found on WednesdayAn overgrown coat can cause severe medical complications, even death A member of the ...

Anger as hundreds of boy racers filmed using a Tesco car park for late-night drag racing party

As many as 700 cars flocked to the supermarket in Monkspath, SolihullCrowds lined the streets to cheer on drivers as they sped around car parkTyre ...

EU referendum rules will be rewritten to ban 'huge amounts' of public money being spent in run-up to vote

David Cameron orders changes to be made to EU Referendum BillPurdah period restricting use of public money was due to be scaled backEurosceptics warned ministers ...