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13 Aug 2008
The Bank of England has predicted the economy will fall into recession over the next three quarters, after it released a gloomy inflation report today.
GDP forecasts predict a minimal year on year growth for Q308 and zero year on year growth in Q408 and Q109, suggesting that the economy will be taken into technical recession.
The Bank predicts that CPI inflation will rise from 4.4 per cent to five per cent within the next couple of months, before dropping sharply during 2009. It is expected to reach target in late 2009.
On wages the Bank see risks and acknowledges that employees may want to offset inflation increases with higher wage demands. Nonetheless it predicts that they are likely to have to accept some moderation because of increases on non-wage input costs and a rise in unemployment.
The Bank has also widened its upside and downside risk profile both on inflation and growth. It expects inflation to fall over 2009 but has set a tone of ‘wait and see’.
This approach will see rates on hold for the rest of 2008, with the first of 3-4 cuts being made in early 2009.
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