By: Dr. Mike Campbell
In a rare piece of analysis which nobody will challenge, the Bank of England pronounced that the outlook for the UK economy remains uncertain. This profound statement of the blindingly obvious comes in a much anticipated quarterly report into inflation.
The report notes that rising energy and raw material costs taken in conjunction with a planned hike in VAT to 20% in January meant that inflation was likely to remain above the Bank’s target inflation level of 2% next year. However, according to the bank’s crystal ball, inflation will dip below the 2% level in two year’s time.
Bank of England Governor, Melvyn King, said that he believed the UK recovery would continue, but that its fate was tied to developments in the global economy. The report is upbeat about the prospect of the UK economy being forced back into contraction.
The report notes that the UK’s better than expected Q3 performance had been largely attributed to the construction sector. However, one source of uncertainty was the effect that government cuts would have on this sector. Since government expenditure was being cut back, the performance of the UK economy would be dependent on developments elsewhere in the world.
The Governor expressed his hope that the G20 meeting would issue a cooperative message when it meets tomorrow and Friday, rather than the divisive ones that had emerged in recent weeks as nations look to their own narrow concerns rather than the broader picture. He cautioned that protectionism would be bad for everybody.