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
One of the richest towns in Britain also has the highest number of people having extramarital affairs, according to new research. Wealthy Maidenhead tops a new ... Full story
A trainee teacher hanged himself on New Year’s Eve after a split from his girlfriend, an inquest heard today. Keiran Walsh, 22, split from his partner ... Full story
Late on a dark and rainy night, it is all go-go-go down at White Dee’s house in Birmingham. There is a pan of fish stew ... Full story
Rate this article
MOST POPULAR ON CAPITALBAY
- 'I thought I was going going to die - because of my hair dye': Woman is hospitalised after home-highlighting kit swells her head to size of rugby ball and leaves her unable to see for five days
- How the baby born with the upside-down head has defied doctors who told his mother to let him die, and is now a motivational speaker
- The knee operations diagnosed by computer
Fund manager Neil Woodford today sold his stake in HSBC, citing concerns about "fine inflation" in the banking industry. Woodford, who quit Invesco Perpetual to ...
An Ecuadorean volcano is spewing ash five miles into the air, closely monitored by experts, after an eruption this weekend. Ash from the Tunguarahua volcano, whose ...
Al Pacino has opened up about the struggles he and others have faced when battling depression. The veteran actor said that he felt "spared" and "lucky" ...
Yves Carcelle, former chairman and CEO of Louis Vuitton, died yesterday (Sunday 31 August), aged 66. The French businessman had been battling with a rare form ...
Islamabad was hit by the chaos after anti-government protesters attempted to storm the Prime Minister’s residence and pushed their way into the building of a ...
Homeless man ‘kills two New Zealand welfare workers’ after describing his benefit struggles in local paper
A homeless man in New Zealand who allegedly shot dead two welfare police officers, critically injuring a third, has been detained after a seven-hour manhunt. Only ...
The British Wildlife Photography Awards winners have been revealed, with Lee Acaster from Suffolk taking home the top prize for his shot of a Graylag ...
Anna Kendrick on her own nude photo leak: 'It would be photos of food and other people's dogs anyway'
Anna Kendrick was not among the 100 high-profile names to have had her phone hacked, but she says that we’d all be pretty disappointed with ...
Pakistan's capital was plunged into further chaos after anti-government protesters pushed ever closer to the Prime Minister’s residence and stormed the offices of a state-controlled ...
Manchester United today agreed a sensational deadline day loan deal for Radamel Falcao, with the anticipated £9m outlay taking the cost of their desperate attempts ...