King warns of "uncomfortable" economic outlook

BoE governor predicts rise in inflation
BoE governor predicts rise in inflation

Britain's economic outlook is "uncomfortable", the governor of the Bank of England has said.

Giving evidence to MPs, Mervyn King predicted economic growth will slow and inflation is likely to rise in the medium-term.

He blamed the global credit crunch, combined with rising energy and food prices, for increasing inflationary pressures.

Giving evidence on the inflation report to the Treasury select committee, Mr King warned of an "uncomfortable" economic forecast.


He said: "The most likely outcome is for output growth to slow and inflation to rise at least for a period."

But he predicted inflation would then return close to the two per cent target and growth would move in line with the long-term average.

The government has admitted growth is likely to slow next year but maintains the UK economy will still be increasing overall.

Mr King said the global credit markets had not yet recovered, making it difficult for lenders to raise cash.

This is resulting in tighter credit lending, with knock-on effects for consumer spending and repercussions for the economy.

The Liberal Democrats said Gordon Brown's economic policies were to blame for the bleak economic outlook.

Economic affairs spokesman Vince Cable said Mr Brown had kept credit overly cheap as chancellor by excluding house prices from inflation figures and "actively encouraging" a "buy now pay later" attitude.

Mr Cable said: "For ten years Gordon Brown recklessly allowed banks to engage in ever more unsustainable lending on the back of a bubble in the housing market. He achieved short-term growth at the cost of long-term stability.

"With a rapidly cooling housing market and a global credit crunch starting to bite, after our years of plenty we are left with nothing in reserve to deal with the upcoming years of famine."

Mr Cable urged the prime minister to deal with irresponsible lending as well as acting to support those struggling to pay their mortgages.

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