Turmoil is as bad as the 70s, warns deputy governor
The current financial downturn is at least as bad as the 1970s, according to the Bank of England’s new deputy governor who has warned that there is no end in sight to the downturn.
In an interview with the BBC, economist Charlie Bean, who took over as deputy governor earlier this year, said the current turmoil would “drag on for some considerable time” given that, every time sentiment improved, “another grenade” exploded in financial markets. “This is at least as challenging a time as back in the 1970s,” he added.
However Bean also called on people not to place too much significance on the latest UK growth figures. Last week second quarter economic growth was revised down from 0.2 per cent quarter-on-quarter in the initial report to zero by the Office of National Statistics, following downward revisions to both manufacturing and service sector output.
“With growth weaker than we thought last quarter, the eventual contraction in the third quarter and beyond may turn out to be larger than we are presently forecasting The question the Bank of England will be asking is whether this economic slowdown is just sufficient, or too sharp, to bring inflation back to its two per cent target going forward,” said Deutsche Bank economist George Buckley.
But Bean said he was hopeful that growth would begin to pick up again next year and that inflation would also “drop back”.
“This is just a transitory period of subdued growth and we will get through the other side and the growth will resume to more normal levels,” said Bean.
Bank of England governor Mervyn King has already warned that the UK economy is in for a difficult and painful period due to a combination of high inflation and rapidly slowing growth.
Meanwhile, the International Monetary Fund yesterday trimmed its forecasts for 2008 and 2009 world economic growth, largely due to a marked worsening in the outlook for the euro zone.
It now expects world growth this year of 3.9 per cent, down from its earlier 4.1 per cent forecast.