London: The Bank of England said on Wednesday inflation in Britain will likely stay well below the official 2% target over the coming three years as the economy suffers a deep and prolonged recession amid a deteriorating global backdrop.
“The UK economy is in a deep recession,” bank Governor Mervyn King said at a news conference.
In its quarterly economic projections, the Bank of England said economic growth was not likely to emerge until late 2009.
By then, the sharp fall in borrowing costs, the government’s loosening of the purse strings, the big drop in the pound, and previous declines in commodity prices and concerted efforts around the world to thaw credit markets should start to bear fruit, it said.
However, in its so-called Inflation Report, the bank warned that it was very possible that growth may not emerge until much later particularly if the wide-ranging measures around the world to improve availability of credit do not work.
“The risks surrounding the central projection for growth are judged to be weighted heavily to the downside,” the Bank of England said.
“This in large part reflects the possibility that, over the forecast period, the authorities at home and abroad are only partially successful in improving the availability of credit and restoring business and consumer confidence,” it added.
The central bank said the recession will likely bite hardest in the second quarter of 2009, with gross domestic product likely to contract at an annual rate of 4% as the weakening labour market and increased uncertainty weigh on consumption, investment and exports.