Inflation Report May Still Be Too Optimistic About Economic Prospects
16 February 2012 in Chamber News
Commenting on the quarterly Inflation Report published today by the Bank of England, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:“The new Inflation Report highlights the difficult economic circumstances facing the UK economy over the next few years. With the government continuing to implement its austerity plan, and given the problems in the eurozone, UK growth will remain weak over the next few quarters, though a recession is unlikely.
“However, the improvement in growth for 2013 and 2014 may be too optimistic. While we agree that growth will gradually strengthen form the middle of 2012 onwards, the pace of improvement is likely to prove slower than the report predicts. We agree with the Bank that inflation is likely to fall sharply during 2012, but we are not convinced that the decline will be quite as sharp as stated in the report. It is also doubtful that we will see a prolonged period of below target inflation in 2013.
“Given the economic picture painted by the report, it is clear that interest rates will remain at their current low level for the foreseeable future. While the report does not give a clear signal about the likelihood of increases in quantitative easing, expectations that it will be raised further are premature. We believe that the QE programme could be made more effective if the MPC also purchased private sector assets, rather than focusing exclusively on gilts.”