Bank of England chief warns of 'choppy' recovery

January 26, 2011 | 13:11

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Bank of England governor Mervyn King has said a surprise slump in economic growth in the last quarter of 2010 pointed to a "choppy" recovery and voiced concern over "uncomfortably high" inflation.

Gross domestic product (GDP) shrank 0.5 per cent in the three months to December, the first drop in economic output since the third quarter of 2009, the Office for National Statistics (ONS) said in a statement.

Analysts were shocked at the news, which stoked fears that Britain could be heading for a double-dip recession as deep spending cuts introduced by the Conservative-Liberal Democrat coalition bite.

In a speech in the northern city of Newcastle late Tuesday, King stressed that the economy was "well placed to return to sustained, balanced growth" but warned it would face strong headwinds in 2011.

Declines in real earnings and rising unemployment will affect spending in the private sector, while the public spending cuts will hit the public sector hard, he said.

"Today's GDP figures remind us that, as I said last year, the recovery will be choppy," he told the accountants' business dinner.

But King added that of more immediate concern to the BoE's Monetary Policy Committee - which sets interest rates in Britain - was that the country was "experiencing a period of uncomfortably high inflation."

He warned Britons to expect inflation to rise to between four percent and five percent in the coming months.

The BoE has faced calls to raise interest rates after inflation rose to 3.7 per cent in December, way above the bank's two-percent target.

AFP

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