Euro crisis a ‘threat’ to slow UK recovery

Britain’s economy still looks set for a gradual recovery but the turmoil in the eurozone poses a risk, Bank of England Governor Mervyn King said yesterday.

“We don’t know when the storm clouds will move away. But there are good reasons to believe that growth will recover and inflation will fall back,” he told a news conference, presenting the bank’s latest forecasts.

“The economy will continue to face strong headwinds over the forecast period,” he said. “Underlying concerns about balance sheets, especially in the financial sector with its exposure to the euro area, mean that the path of recovery is likely to be slow and uncertain.”

In its Inflation Report, the bank forecast that inflation is likely to remain above its two per cent target for at least another year, while growth will be subdued and vulnerable to the eurozone debt crisis.

The Bank of England’s forecasts represent a much slower fall in inflation than it predicted just three months ago as well as a weaker growth outlook, adding to Britons’ gloom as their economy struggles to recover from the financial crisis.

The figures come just after the Central Bank decided to halt its programme of quantitative easing, reducing support for an economy that has slipped back into recession and faces a programme of drastic public spending cuts.