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UK economy may contract again in Q4

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UK GDP could shrink in the last quarter, despite moving out of recession in Q3.
UK economy may contract again in Q4

Speaking after the publication of the Bank of England’s’s quarterly inflation report, governor Mervyn King has said the UK economy King said it is “difficult to discern” the true path of GDP and said the UK recovery may start later than previously forecast.

He also pointed to the strength of sterling as a negative factor for the economy, saying a strong pound is undermining competitiveness and may result in a slower recovery.

The governor said the Q3 GDP rise, estimated to be 1% according to the Office for National Statistics, was fuelled by one-off factors, meaning “headline growth is consequently likely to fall back sharply in Q4”.

The Bank has also lowered its GDP estimates for future quarters.

The BoE upped its inflation forecast, citing “unexpectedly large” rises in energy prices, and now expects CPI inflation to fall back to its target a full year later than it forecast in August’s report.

The Bank’s charts suggest CPI will drop to 1.8% in two years’ time.

King added the Bank’s Monetary Policy Committee had not lost faith in the ability of its quantitative easing programme to help the economy.

Sterling fell against the dollar following the governor’s comments, moving to a day low of $1.5862, while the euro rose to the highest level against the pound since 1 November at 80.35p.

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