Bank of England governor Mervyn King has said the UK economy may contract once again in the fourth quarter of 2012 despite moving out of recession in Q3.
Speaking after the publication of the Bank’s quarterly inflation report, Mervyn King said it is “difficult to discern” the true path of GDP and said the UK recovery may start later than previously forecast.
He also pointed to the strength of sterling as a negative factor for the economy, saying a strong pound is undermining competitiveness and may result in a slower recovery.
The governor said the Q3 GDP rise, estimated to be 1% according to the Office for National Statistics, was fuelled by one-off factors, meaning “headline growth is consequently likely to fall back sharply in Q4”.
The Bank has also lowered its Gross domestic product estimates for future quarters.
The Bank of England upped its inflation forecast, citing “unexpectedly large” rises in energy prices, and now expects CPI inflation to fall back to its target a full year later than it forecast in August’s report.
The Bank’s charts suggest the consumer price index will drop to 1.8% in two years’ time.
Sir Mervyn King added the Bank’s Monetary Policy Committee had not lost faith in the ability of its quantitative easing programme to help the economy, but said the transfer of QE proceeds to the Treasury was equivalent to a further round of asset purchases.
He said that decision, coupled with the Bank’s higher inflation forecasts, were the principal reasons behind the decision not to unveil further asset purchases this month.
Sterling fell against the dollar following the governor’s comments, moving to a day low of $1.5862, while the euro rose to the highest level against the pound since 1 November at 80.35p.