The Bank of England warned yesterday that the UK economy faces a further period of uncertainty, with the potential for a spike in inflation.
In its quarterly inflation report, the Bank suggested that the UK’s future economic performance depends in great part on global developments.
Rising commodity prices threaten to push up inflation next year, according to Governor Mervyn King. Inflation is also likely to be buoyed by the continuing weakness of the pound.
But the report suggests that the Bank now believes the potential for a double-dip to be very slim. In general, King said the economic risks are now “on the downside.”
Calling on the major world economies to act in concert, the Governor said: “If we fail to recognise that there is a genuine collective interest, then it will be lose-lose and every country will be worse off.”
The latest GDP growth figures showed that the economy expanded by 0.8 per cent during the third quarter. This was higher than predicted, but significantly below the 1.2 per cent recorded in the previous three months.
King also warned that proposed government cuts are likely to impact on the economic recovery, with the construction sector particularly at risk.