The Bank of England downgrading growth prospects for the UK economy has prompted a flood of commentary from various elements.
Within its latest Inflation Report, the Bank is now predicting the economy to grow by 2.5% in 2011. This forecast is revised down from 3.4%. A lack of lending by the banks is highlighted as one of the reasons for limited economic growth.
Whilst growth being revised downwards came as little surprise, the report does demonstrate the real impact of the austerity measures being introduced by the coalition government. It repeated the government message of a shift from a public to private sector driven economy.
The Inflation Report also points to the uneven nature of world economic recovery. This could create opportunities for investors who are prepared to make tactical adjustments to their portfolios, reflecting growth prospects in different geographical regions.
Whilst the inflation forecasts was revised upwards, the Bank continues to believe it will remain below target over the medium term. This suggests that interest rates will remain low for at least the rest of this year, if not longer.
Much of the media seems keen to promote the possibility of a ‘double-dip’ recession, although it is important to remember that this is an exceptionally rare event for an established Western economy.
