Bank of England chief warns of ‘choppy’ economic recovery

Following yesterday’s figures which showed Britain’s economy shrank by a shock 0.5 per cent in the final three months of 2010, Mervyn King braced consumers for a bleak financial year.

The Bank Governor said the UK economy was “well placed to return to sustained, balanced growth”, but difficult times lay ahead in 2011.

In a speech at Newcastle’s Civic Centre last night, the Bank Governor said inflation would rise to “uncomfortable high” levels this year, with a peak of between 4 per cent and 5 per cent over the next few months. Next year inflation would then fall back “quite sharply”, Mr King said.

Gross domestic product (GDP) contracted in the in final quarter of 2010, which stoked fears Britain could be heading for a double-dip recession as deep spending cuts are introduced by the government’s austerity measures.

It also raises the prospect of stagflation – a period of high inflation coinciding with a stagnating economy.

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