Jobless up, inflation up, growth down: Bank chief delivers his grim predictionsLarry Elliott and Wai-Leng Chon
The Guardian, Thursday August 14 2008
Sterling fell to its lowest level against the dollar in almost two years last night after the governor of the Bank of England, Mervyn King, warned that a "difficult and painful" period would bring the economy to a halt over the coming year.
Despite predicting that inflation would continue to rise over the coming months to top 5%, the Bank's recession alert left the City convinced that the Bank would respond to the weakest growth since the early 1990s by cutting the cost of borrowing later this year or early in 2009.
On the foreign exchanges, the pound dropped by more than three cents against the dollar and its value against a basket of global currencies dropped to its lowest level in more than 11 years in the wake of the Bank's forecast that a rapidly slowing economy and tumbling oil prices would see inflation drop back below its 2% target within two years.
While most City economists believe that the Bank will wait until inflation has peaked before cutting the cost of borrowing from 5%, some believe that the threat of a looming recession could prompt a move as soon as next month.
"The real economic data is undeniable. The economy is slowing really sharply and to forecast inflation below target in two years' time was a huge signal," State Street strategist Lee Ferridge said. "Will they cut
next month? Well, you can't rule it out with the signal they have sent." ........(more)
The complete piece is at: http://www.guardian.co.uk/business/2008/aug/14/inflation.bankofenglandgovernor