King braces UK for economic slowdown

The sequence of interest rate rises over the last year has eased consumer spending and brought inflation closer to the UK target, Bank of England Governor Mervyn King has announced.

Mr King said interest rates have not yet peaked, warning that the British economy's "softer patch" must be weighed against the weaker pound and strong consumer spend.

Speaking in Cornwall to the Eden Project, he made clear that "weaker activity" in the economy was "no time for complacency or hubris" over inflation, despite news it had dropped to a low of 1.1per cent.

"The combination of low and stable inflation and continuously falling unemployment must come to an end at some point, and may have already done so," said Mr King.

Speaking later on Radio Devon, he stated: "The impact of the rises in interest rates that have been put into place over the past year, has now started to slow consumer spending and to keep inflation close to the target."

However, Mr King gave no clear indication as to whether the slowdown in the economy meant that interest rates, which have risen five times since November 2003, would remain on hold.

"The implications for interest rates will depend on developments in the economy which the MPC will monitor carefully," Mr King said to his audience at the Eden Project.

Across the rest of the economy, overall growth has slowed from 0.8 growth rate in early August, to 0.4 per cent growth this month.

Likewise, a slowdown has also been noted in house prices, where growth has eased from 4.8 per cent, to just 2.1 per cent this month, according to Halifax figures.

Mr King said the period since the 1990s were the "nice" decade, reflecting a Non-Inflationary Consistently Expansionary time.

He now predicts a "not-so-bad" decade, an acronym for Not-Of-The-Same-Order-But-Also-Desirable.

Separately, he said that immigration workers had eased "the bottlenecks and skills shortages in what is an undoubtedly a tight labour market."

Such workers from the enlarged European Union could be "suppressing signs of an underlying wage pressure."

"Migrant workers are employed in fish processing here in the south west, and even in the production of Cornish pasties, as they are in an increasingly wide range of industries in manufacturing, construction and services," he said.

 

14th October 2004

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