Bank chief warns of 'difficult' year
Aug 14 2008 by Graeme King, The Journal
THE UK economy could officially dip into recession this year amid a period of "flat" financial performance, a bleak Bank of England report said yesterday.
Bank governor Mervyn King said in his quarterly report that the country was facing economic stagnation and it would go through "a difficult and painful adjustment", though several commentators said the North East was faring better than the South.
City economists said with inflation set to remain above target for some time it was unlikely that interest rates would come down in the near future.
New unemployment figures added to the feeling of woe yesterday with the number of people out of work and claiming Jobseeker’s Allowance in July rising at the fastest rate for 15 years. Mr King did not rule out the possibility that the UK could enter a period of recession, as defined by two successive quarters of the economy shrinking.
The Bank’s report said with no rate cuts in the next two years inflation would probably peak just below 5% in the coming months before falling sharply next year and dipping below the official 2% target in two years’ time.
Mr King added: "The adjustment of the UK economy to higher commodity prices and a more realistic pricing of credit will be painful. The next year will be a difficult one, with inflation high and output broadly flat. But with monetary policy focused on its task of bringing inflation back to the target, we will come through the adjustment."
Richard Elphick, chairman of the Institute of Directors in the North East, said: "What the Bank of England is saying is not a surprise to anyone in business and I see people taking a balanced view for once. Nobody is panicking and rushing to the gates – managers and workers are aware that these are difficult times. I think this (period of downturn) is being felt more in the South than in the North."
Manufacturing organisation EEF Northern regional manager Tony Sarginson said: "We are not as optimistic as we were a month ago, but we are certainly not as pessimistic as the Bank of England. Our manufacturing sector in the region is not doing too bad, though some sectors are affected worse than others."
North East Chamber of Commerce spokesman Mike Parker said: "It’s too simplistic to say the economy will be flat across the board. Certain sectors are performing extremely well. As One NorthEast has said, business confidence is greater in this region than what is said nationally."
Liz Smith, assistant regional director of the CBI, said: "The outlook should start to look better next year, and certainly there are sectors of the North East economy which are holding up well in spite of current pressures."
Jobless plea
MINISTERS were last night urged to “do all they can” to tackle unemployment in the North East.
The plea from business leaders came as official figures indicated that 91,000 people were unemployed in the region between April and June this year, a rise of 12,000 on the same period last year. The number of benefit claimants rose slightly by 2,000 to 51,100 over the same period.
The North East Chamber of Commerce voiced concerns over the method used to calculate the jobless total, with a potential margin of error of 17,000, especially as its own quarterly survey showed firms still wanted to take on staff.
“But there is no doubt that the climate is more difficult than it has been at the moment and that is why it is important that the Government and public bodies do all they can to make sure business can continue to grow and take on staff,” added the North East Chamber.
