Bank of England slashes growth forecasts as inflation hits 5%

The big picture is still much of a muchness. Economic growth is compacting while inflation sneaks up, aided and abetted by rising utility bills and weak consumer spending.

But, as usual, the new forecasts are not set in stone. Like weathermen attempting to scry next month's weather, King warns that his estimates are subject to "a great deal of uncertainty". The volatility of commodity prices (the cost of oil plunged 10% last Friday) could make or break inflation.

Business analyst and Smarta columnist Stephen Archer says: "Mervyn King may have asked for caution in interpreting his forecasts but the media and public will latch onto the 5% inflation figure and depress confidence. This is a great shame, especially as I do not believe that inflation will reach 5% at any time this year.

Supply costs will stabilise and, in many areas, fall. Oil-driven energy costs will stabilise as Brent crude slips further back and Chinese demand for all natural resources slackens. UK import costs will fall as the Euro slips towards rates not seen for a few years.

Higher food costs have also been cited as a contributing factor behind inflation's rise this year. Equally, low pay rises and weak economic activity are like unwanted passengers on the pushbike of the economy, struggling uphill on a slippery road. "Wage and money growth, at around 2%, continue to be weak," said King.

PwC Northern Ireland's chief economist Dr Esmond Birnie calls the new Report "a another sombre assessment of the UK economy".

"A challenging and uncomfortable time lies ahead for households struggling to make ends meet, for the Bank's Monetary Policy Committee in terms of trying to retrieve some inflation-fighting credibility and for the Coalition government in terms of applying the planned fiscal squeeze," he says.

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