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
Beau Wiles, 25, and his girlfriend appeared in court after he escaped prisonThe prisoner escaped from minimum security within Goulburn Prison He was captured by police ...
Millionaire environmentalist Zac Goldsmith chosen as the Tory candidate to succeed Boris Johnson as London mayor
Conservative backbencher elected with 70% of the vote, Tories confirrmHe will now fight Labour's Sadiq Khan to succeed Boris JohnsonMr Goldsmith is an outspoken ...
Dartmoor ponies are to be PAINTED with reflective markings in a bid to stop them being run over on dark country roads
Dartmoor Livestock Protection Society have started painting their animalsReflective strips applied to ponies' sides and rear-end to warn night trafficSixty equines already been killed this ...
Chris Mintz, 30, was taken to hospital following the college shooting Started the day by wishing his son, six, 'Happy Birthday' on FacebookHe then headed to ...
Voyeur who hid mini camera to spy on customers undressing in Asda disabled changing room is jailed for a year
Christopher Robinson, 44, attempted to record videos of women at AsdaHe failed when the camera fell of its mount and found lying on floor by ...
The Titanic served Fillets of Brill and Chicken Maryland on its last dayThe doomed liner offered potatoes that were mashed, fried or bakedIced Munich lager ...
Military says forces are scouring area near Palestinian village Beit FurikFour children in car received minor injuries in attack but parents diedIt comes amid unrest ...
British Army is launching its first recruitment campaign in almost a decadeLast year, only 81 per cent of posts filled at training academy in SandhurstDrop-off ...
Two men have reportedly been shot dead outside a police headquarters Multiple shots were fired just 700m from the main station in ParramattaWitnesses reported seeing ...
Russian and British officials engaged in a diplomatic spat on Twitter Clash came as US issued warning about Russian involvement in SyriaThe Russian Embassy taunted ...