Commenting on the Bank of England’s quarterly inflation report issued today, KPMG Chief Economist, Andrew Smith, said:
“More bad news: another forecast, another downgrade. The Bank has just slashed this year’s projection of 1% growth - made only three months ago – to nothing. Even that could prove optimistic: output will have to pick up sharply from now on if 2012 is not to be another recession year.
“Economic data will have been distorted by the Jubilee holiday and the Olympics, but there seems little on the horizon to lift the economy. Austerity measures have a long way to go at home and Europe, our main export market, is stagnating at best.
“The good news, to the extent there is any, is that inflation is falling rapidly. Real incomes should soon start to increase, providing some relief to households. But whether consumers will spend or continue to save remains to be seen.
“With inflation now projected to fall below target as early as the turn of the year, the door is wide open for more unconventional policy measures. Further quantitative easing is likely once the current tranche is completed in November. But with the MPC now having fully reversed its earlier optimism (a year ago it was forecasting 2% growth this year) even the previously dismissed measure of a reduction in interest rates is back on the table.”
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Notes to editors.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.