Lower economic growth seen for Britain

London – Bank of England on Wednesday given the gloomy outlook for the British economy as cut its growth outlook and said inflation in the short term will be higher than expected previously.

Weak growth and high inflation “is painful for each participant in our society” and will continue to hurt disposable income in the short term, Mervyn King, Governor of the Bank of England, said as he presented a report of the Central Bank’s quarterly inflation. “The path of recovery is likely to be slow and uncertain,” he said, adding that for Great Britain of “the greatest risk to recovery stems of the euro area.”

The Bank of England lowered its average growth forecast for the economy this year to around 0.8% of the 1.2 percent, he forecast earlier. Inflation, which is currently at 3.5 per cent, is likely to remain above the 2% target until the middle of next year. The Bank has forecast in February that inflation will refuse to level later this year.

Britain, which is a member of the European Union, but has not adopted the euro fell back into recession since the beginning of this year. The economy is struggling, because the increasing consumer prices curbed household expenditure, bank loans continue to be tight and a decline in demand for goods from the euro-zone, Great Britain, the main export market.

Pound against the euro and the dollar fell on Wednesday, but recently an increase against the euro put additional strain on the industry of Great Britain exports by making goods more expensive. Some investors have looked to the pound, as a more secure investment option as the economic situation in the euro area deteriorated.

Mr King said the Bank of England continues to face “a difficult choice between helping the economy recover or limiting inflation, the determination of the interest rate in and the decision to add to the package of fiscal incentives

Economic Scene: Leaving the Euro May Be Better Than the Alternative

AppId is over the quota AppId is over the quota What took economists some time to understand was that Europe’s leaders didn’t much care what they thought.


“The European Commission did invite economists to present their views. It was a Darwinian process,” said Paul De Grauwe, professor of European political economy at the London School of Economics. “I was invited, but when I expressed my doubts I wasn’t invited anymore. In the end only the enthusiasts were left.”
The single currency served an overriding political objective. Like the single market before, it was conceived primarily as glue to bind Europe more closely together, tie Germany’s prosperity to that of its neighbors and prevent a third world war from the Continent, which had brought us two. A few engineering flaws wouldn’t be allowed to get in the way of such an important project.
A little over a decade since the first euro bills hit the shops in Madrid and Berlin, the euro’s design flaws have pushed much of the European Union into a deep economic pit. And political imperative is again being deployed as a major reason to stick to the common currency. “This enormously important motivation is often underestimated by outsiders,” argued the Financial Times columnist Martin Wolf, the most sober analyst of Europe’s economic maelstrom.
Yet for a project intended to draw Europe together, the euro did surprisingly little to build solidarity. German voters endured a recession two decades ago after bringing in their brethren from the Soviet bloc. They now appear unwilling to spend a pfennig to help the Greeks, Spaniards, Portuguese, Irish or Italians. Click Here!
Conceived as a tool for integration, the euro could, instead, tear Europe apart.

The longstanding political order in Greece, a country in an economic tailspin and dependent on the International Monetary Fund and its European partners to pay its debts, imploded on May 6. Voters punished the main parties for agreeing to a budget-cutting strategy that has contributed to an unemployment rate above 20 percent. With no party able to form a governing coalition, Greece is headed to new elections in June.
Turmoil — the economies of about half the countries in the euro area are shrinking — has spawned political crises across the Continent. Eleven euro area governments have fallen in just over a year. Extremist political parties are on the rise. Almost two-thirds of the population in euro zone countries still support the euro, according to the latest Eurobarometer poll taken last November.
Yet angry nationalism and mistrust are overpowering Europe’s sense of common purpose. Trust in the European Union fell to a low of 34 percent in November from 48 percent in the fall of 2009.
“The paradox would be that the monetary union that was supposed to be a steppingstone to more union becomes a steppingstone to less union,” said Mr. De Grauwe, who is also a former member of the Belgian parliament.
Social upheaval across the euro area suggests that it may be time to call it quits and try to work out an orderly process to re-establish national currencies throughout the bloc.
Europe would be in much better shape if the euro didn’t exist and each member country had its own currency. Monetary union has shackled together nations with vastly different economies, depriving them of an independent monetary policy that can help them through rough times. The interest rate and exchange rate that serve Germany also have to serve Spain, though that country has more than four times Germany’s joblessness.
The main problem is that while leaders eagerly embraced the monetary bond, they rejected its necessary complement: a central budget that would transfer money from successful regions to underperforming ones, as the United States government sends tax dollars collected in Massachusetts to pay for unemployment benefits in Nevada.
The euro fed the illusion that Greece, Spain and Italy were as creditworthy as Germany or the Netherlands, propelling a decade-long credit boom in Europe’s less-developed periphery. And it was spectacularly ill-designed to deal with the shock when capital flows to those nations suddenly stopped. Weak countries not only had to rely on their own devices; they had to do so without a currency or a monetary policy of their own to absorb the blow.
E-mail: eporter@nytimes.com
Twitter: @portereduardo
E-mail: eporter@nytimes.com Twitter: @portereduardo

Lower economic growth seen for Britain

London – Bank of England on Wednesday given the gloomy outlook for the British economy as cut its growth outlook and said inflation in the short term will be higher than expected previously.
Weak growth and high inflation “is painful for each participant in our society” and will continue to hurt disposable income in the short term, Mervyn King, Governor of the Bank of England, said as he presented a report of the Central Bank’s quarterly inflation. “The path of recovery is likely to be slow and uncertain,” he said, adding that for Great Britain of “the greatest risk to recovery stems of the euro area.”
The Bank of England lowered its average growth forecast for the economy this year to around 0.8% of the 1.2 percent, he forecast earlier. Inflation, which is currently at 3.5 per cent, is likely to remain above the 2% target until the middle of next year. The Bank has forecast in February that inflation will refuse to level later this year. Britain, which is a member of the European Union, but has not adopted the euro fell back into recession since the beginning of this year. The economy is struggling, because the increasing consumer prices curbed household expenditure, bank loans continue to be tight and a decline in demand for goods from the euro-zone, Great Britain, the main export market.
Pound against the euro and the dollar fell on Wednesday, but recently an increase against the euro put additional strain on the industry of Great Britain exports by making goods more expensive. Some investors have looked to the pound, as a more secure investment option as the economic situation in the euro area deteriorated. Mr King said the Bank of England continues to face “a difficult choice between helping the economy recover or limiting inflation, the determination of the interest rate in and the decision to add to the package of fiscal incentives