BoE cuts UK growth forecast; warns of euro zone fallout

A number of one-off factors are likely to affect the pattern of quarterly growth of domestic output in the UK during 2012, Bank of England (BoE) governor Sir Mervyn King said while presenting the Bank's quarterly inflation report.
 
BoE has cut its growth forecast of the British economy for this year to 0.8 per cent from 1.2 per cent, saying the euro zone 'storm' is still the main threat to UK recovery.

The euro zone was 'tearing itself apart' and the UK would not be 'unscathed', said the governor.

The near-term outlook is judged to be somewhat higher than expected three months ago, with inflation now likely to remain above the 2 per cent target for the next year or so, he said. A gradual easing in the impact of external price pressures together with a continuing drag from economic slack should lead inflation to fall back to around the target, he added.

Output had barely grown for a year and a half and was estimated to have contracted slightly in the past two quarters, the bank noted.

The euro-area economy remained weak, but global activity overall continued to expand at a moderate pace. Looking through those effects, underlying demand growth is likely to remain subdued in the near term, before a gentle increase in households' real incomes and consumption helps the recovery to gain traction, BoE said.

The possibility that the substantial challenges within the euro area will lead to significant economic and financial disruption continues to pose the greatest threat to the UK recovery.