This is the fifth downgrade since last June and this time the estimate has been cut from 1.8 per cent. The knock-on effect is that the forecast for 2012 has been cut from 2,5 per cent to nearer to 2 per cent.
He also predicted inflation could increase above 5 per cent as energy bills continue to climb. “The timing and fall back in inflation is highly uncertain,” King said. However, he is sure that inflation should fall back below the 2 per cent target in the medium term, as temporary factors fade.
According to the Governor, some of the biggest risks to economic growth come from the global economy and it is very hard to quantify those risks.
“The key question is whether that burden will be shared in the context of a downturn in the world economy or a rebalance in demand. We must work with our colleagues abroad to reduce the imbalance. But there are limits to what monetary policy can do to alter inflation,” he said.
He declined to say if the Bank of England was considering another round of quantitative easing in order to prop up the economy. But he warned that "there is a limit to what UK monetary policy can do when large, real adjustments are required".
On a more upbeat note, the Governor is confident that, while it may be small and more gradual than some would like, there will be a recovery, as the country is doing its best.
“We have a credible medium-term fiscal plan, which many countries do not, and we have had a depreciation of our exchange rate (which could help exports)," he said.
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