King set to signal slow recovery
Updated on 11 November 2009
Bank of England Governor Mervyn King is likely to signal a slow and lingering recovery for the UK when the Bank publishes its latest economic forecasts.
The Bank's quarterly inflation report comes less than a week after rate-setters voted to bump up efforts to boost the money supply with a £25 billion expansion of quantitative easing to £200 billion.
Although the Bank is easing back the pace of QE, policymakers decided a bigger spur to the economy was needed to help hit the 2% inflation target amid prospects of a "slow recovery".
Since its August forecasts, official estimates showed a shock 0.4% fall in output between July and September - a record sixth straight quarter of decline - when the UK was expected to pull out of recession.
This could lead the Bank to mark down growth forecasts for next year - with the economy climbing out of the slump at a slower pace than first thought.
Persistent problems in the banking sector will limit credit and could act as a brake on recovery, the Bank has warned.
IHS Global Insight's Howard Archer said: "We expect the report to reveal that the Bank believes that the economy is now starting to recover but still faces serious obstacles to healthy, sustainable growth."
The Organisation for Economic Co-operation and Development (OECD) said in September the UK economy would shrink by 4.7% this year, a much bigger decline than the 3.5% predicted by the Treasury.
The report could also give indications over when the Bank is ready to raise interest rates - currently at a record low of 0.5% - for the first time since July 2007 as it begins to unwind its massive boost for the economy.
Although the Consumer Prices Index is still below target at 1.1% in September, worries over a Japan-style deflationary spiral have eased because of a weaker pound and higher than anticipated energy prices.
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