The Bank of England (BoE) has today announced that it does not expect the UK economy to grow at all over the next year. This is the latest downgrade of growth assesments and many analysts believe a recession is now inevitable.

While the word inevitable is quite strong there are several reasons for using it. Firstly, inflation has reached 4.4% and is predicted by the BoE itself to reach 5% before peaking. This will make it all but impossible for interest rates to be cut in the near future.

This means inflationary pressure will only be brought under control by the slowing growth. This will take much longer to effect than interest rate cuts and may require the economy to go into recession before it becomes effective.

The tight credit conditions will further depress the housing market, with prices continuing to fall for some time yet. Similarly, lack of easy credit will dampen consumer spending and add to the slowdown on the highstreet.

There is reason for hope, however. The recession, if it comes, is expected to be brief. The correction in the market is expected to be painful, difficult but short lived. The growth rate and inflation rate are expected to stabilise within two years.

This entry was posted on Wednesday, August 13th, 2008 at 8:59 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.