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King nips green shoots in the bud

Bank of England governor Mervyn King warns that the green shoots in the UK economy may not signal the end of the economic downturn and predicts a slower recovery than the bank had previously forecast.

In its latest quarterly inflation report last week, the BoE says the timing of a recovery in gross domestic product is “highly uncertain” and it is likely to take longer for bank lending to return to normal than had been assumed in the February report.

It predicts the consumer price index to fall from its current level of 2.9 per cent to below the 2 per cent target later this year.

The report says: “The outlook for economic growth is unusually uncertain. The sharp downturn in global economic activity, combined with the process of adjustment under way in the UK economy, as private saving rises and banks restructure their balance sheets, continues to act as a significant drag on UK growth.”

Threadneedle fixed income Manager Sam Hill says: “Mervyn King played a good Jack Frost to the markets’ recent performance of green shoots at the quarterly inflation report.

“He quite rightly reminded us all that in spite of some good reasons for short term bounces in activity, there are still serious corrections that the economy will only be able to fully adjust to over a much longer timeframe.”


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