Bank Of England Governor Forecasts 0.1 Percent Q1 UK Growth Rate

August 13, 2008 12:16 p.m. EST

London, England (AHN) - With the U.K. inflation rate hitting 4.4 percent in July, Bank of England Governor Mervyn King lowered economic projections for 2009 to a 0.1 percent growth rate for the first quarter.

It is down from the 1 percent projection made by the bank in May. King's downward outlook contrasts with the forecast of Chancellor Alistair Darling, who said despite the slowdown being experienced by the British economy, Britain could still achieve a 2 percent gross domestic product growth rate in 2008 and a higher 2.5 percent expansion next year.

During a press conference, King explained, "It may still be summer but there is a feeling of chill in the economic air... This adjustment to our economy cannot be avoided. As a result, inflation is rising and growth is slowing."

King also hiked inflation predictions for the rest of the year to 5 percent from his 4 percent forecast earlier.

Following King's bleak outlook, Jonathan Loynes of Capital Economics made his own forecast. "The tone is clearly dovish, with the economy now expected to stagnate over the next year or so. Against that background, we stick to the view that interest rates will eventually fall very sharply once inflation pressures finally recede," Loynes said.