(1888PressRelease)
November 20, 2008 - London, BoE predicted that the UK economy could shrink by 2% over the next year, before recovering, if rates remained at 3.0.percent. This is a dramatic shift from the BoE’s previous forecast of 0.5 percent economic growth for 2009. The central bank warned that the economic landscape has changed dramatically since August.
Current high inflation figures were likely to cool off in the next two years, to just below 1 percent - half the government’s target. British 12-month inflation is currently at a 16 year high of 5.2 percent.
"The economy probably entered recession in the second half of 2008 and output is likely to contract further," the central bank stated in its latest quarterly report.
As the economy slows, bank governor, Mervyn King said, "We are certainly prepared to cut... (the BoE's key lending) rate again if it is necessary." The BoE slashed borrowing costs by a larger-than-expected 1.5 percent last week, leaving interest rates at 3 percent- the lowest since 1955.
The Bank of England's projection for the economy to contract sharply next year, could change if the government introduces fiscal stimulus to the economy. Gordon Brown, British Prime Minister, said that he had to employ "very special means” to deal with the current economic situation. The government’s spending plans for the year are to be announced in a Pre-Budget Report on 24th November.
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