London (MNI) – The euro area crisis has been an increasing threat
to the UK’s economic recovery, and the Bank of England needs contingency
plans against it deteriorating further, Bank of England Governor Mervyn
said Monday.
King, in evidence to the Treasury Select Committee, cited the
Eurozone’s turmoil as the key factor behind the sharp growth downgrades
in the BOE’s November Inflation Report. He said there were also clear
signs of slowing growth in the world economy as a whole.
The BOE slashed its growth forecasts this month to show growth of
just under 1.3% this year and just over 0.9% next year.
“Looking at growth over the next 12 months … growth in the first
year has been revised down across the board by over 1 percentage point,
so it is a very big reduction,” King said.
“I would say the bulk of that can be attributed, directly or
indirectly, to a changed perception about circumstances in the euro
area,” he added.
The direct impact comes from lower UK exports to the euro area and
the indirect ones from the hit on asset prices and wealth “and also
credit spreads are higher because of the funding costs of our banks, as
well as those in the euro area.”
“Taking all those things together the bulk of the downward revision
is ultimately (due to) the news since August about what is happening in
the euro area,” King said.
For further information contact David Robinson on 4420 7862 7491
or e-mail: drobinson@marketnews.com.
[TOPICS: M$$BE$]