Recovery in sight: Bank governor

Bank of EnglandBank of England governor Sir Mervyn King insisted a "recovery is in sight" but warned the path ahead for the UK economy will not be smooth.

Presenting the Bank's quarterly inflation report, Sir Mervyn said there was cause for optimism despite the worse than expected contraction in GDP in the fourth quarter of 2012.
However, households were braced for more pain as the Bank said the inflation outlook had worsened since the last report in November and was expected to rise to 3% or more by the summer and remain above the 2% target for another two years.

The Bank said a "slow but sustained recovery" would be supported by an easing in wider global conditions as well as its multibillion-pound Funding for Lending (FLS) scheme, which is boosting credit for consumers and businesses.

Its forecast shows annual GDP rising to around 2% by the end of 2014 and remaining in positive territory despite some volatility in the year ahead.

Sir Mervyn said: "The UK economy is therefore set for a recovery. That is not to say that the road ahead will be smooth. This hasn't been a normal recession and it won't be a normal recovery."

The Bank does not expect a triple-dip recession but said GDP was likely to continue at below pre-financial crisis levels for around another two years.

The report will help ease fears over the economy after the 0.3% contraction in the fourth quarter left the UK on the brink of its third recession since 2008.

Even though inflationary pressures are expected to last until early 2016, the Bank indicated there was no prospect of interest rates tightening soon.

Sir Mervyn said: "Attempting to bring inflation back to target sooner would risk derailing the recovery and undershooting the target in the medium term. So long as domestic cost and price pressures remain subdued, we will continue to look through the temporary, albeit protracted, period of above-target inflation in order to support the recovery in growth and employment."

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