BOE Pessimistic on GDP Growth

The Bank of England issued its most recent report on inflation and GDP growth forecasts. As might be expected the “Overview of the Inflation Report August 2012” said that inflation would be muted — not unusual for an economy that is basically in recession:

CPI inflation fell further, standing at 2.4% in June. The near-term outlook is lower than three months ago, reflecting falls in energy prices and some broader-based weakness in price pressures. Under the assumptions that Bank Rate follows a path implied by market interest rates and the size of the asset purchase programme remains at £375 billion, inflation is a little more likely to be below than above the 2% target for much of the second half of the forecast period, as the impact of external price pressures wanes and domestic cost pressures ease

Notes on mid-term growth were pessimistic, which adds to similar concerns among central banks in most countries with large economies:

There remains a range of views among Committee members about the outlook for GDP growth. On the above assumptions, the Committee’s best collective judgement is that the economy will gradually recover, but that GDP growth in the second half of the forecast period is more likely to be below than above its historical average rate. That outlook is weaker than in the May Report reflecting the possibility that the factors contributing to the weakness of growth since the financial crisis may persist. The difficulty of knowing for how long these factors will continue has caused the Committee to widen the GDP fan chart.The level of output is not likely to surpass its pre-crisis level until 2014

In short, write-off 2013.

Douglas A. McIntyre