Thursday, 11 August 2011
King: Recovery will not happen soon
From today's Morning Star by John Millington
Bank of England governor Mervyn King admitted today that the economy would not recover to pre-recession levels for at least the next three years.
Mr King gave a damning assessment of the economy at a packed press conference in London, claiming that it was vulnerable to "headwinds" from enormous debt overhangs from public and private debt.
He also warned that despite any countermeasures taken by the government, Britain would remain vulnerable to fluctuations in energy and other import prices.
"The outlook for growth in the world economy has deteriorated and, largely as a consequence, near-term growth prospects at home are somewhat weaker," he said.
"The intensification of sovereign fiscal concerns has been associated with renewed funding stresses for banks which are contributing to high borrowing spreads, tight credit conditions for households and smaller companies and exceptionally weak credit and money growth in the UK."
The Bank of England governor also said that the euro-zone disaster in recent weeks had raised challenges for Britain.
"The greatest risks to the prospects for global demand come from the euro area and the substantial challenges faced by several member countries as they seek to ensure the sustainability of their fiscal positions and preserve the stability of their banking systems," he said.
Slashing growth forecasts, Mr King said that inflation was likely to hit 5 per cent by autumn and not reduce by 2013 at the earliest.
"Inflation has been pushed up by rises in energy and import prices and the increase in the standard rate of VAT," he added.
Mr King also said that Bank of England monetary policy could do "very little."
In a stark omission, Mr King refused to speculate on the prospects of a double-dip recession and added living standards would only be squeezed further if import and export prices rose.
Leap co-ordinator Andrew Fisher said: "Demand has been suppressed by unemployment, falling wages of those in work and consumer inflation.
"Until those issues are addressed - and there is no prospect of that from this government - then the crisis will continue and exacerbate.
"Politicians are proving themselves entirely powerless in standing up to those destroying our economies - the speculating financiers, bankers and corporate executives hiking prices to maintain profit margins."