In its quarterly inflation report, the Bank says the economy is likely to contract further, too. Prospects for economic growth are ‘unusually uncertain’.
The banking sector has never been so unstable since World War 1, says the Bank. The weakening economic outlook, plus increased risk aversion, are the cause.
This isn’t helping household spending, already hit by reduced purchasing power from rising energy and commodity prices.
And now, while the commodity price pressure has decreased, any benefit will be ‘more than offset by weak employment’.
GDP is thus not expected to grow throughout the whole of 2009.
In other words, next year, the country will remain in recession.
Things will improve, due to increased supply of credit, further reductions in interest rates, lowering energy and food prices and the lower value of the pound.
Don’t rule out further cuts in the interest rate, either.
As for the nadir, that’s predicted to arrive in mid-spring next year. Then, the recovery will commence.
In summary, the Bank admits these predictions are ‘unusually uncertain’. However, it seems the recession is now officially here. And will continue for some time yet.