The governor, who has come under fire for frequent downward revisions of the growth forecast, said that while he believed that the UK economy would eventually bounce back, it continues to battle a eurozone crisis that "goes on, and on, and on" so the recovery process would be akin to that of an athlete training to achieve Olympic gold. Growth this year is expected to flatline, against forecasts of modest growth from three months ago.
King said: "The overall outlook for growth is weaker than in May reflecting downside news in the near term and, in the medium term, the possibility that the weakness in output and productivity growth that we have seen since the financial crisis persists. GDP growth is more likely than not to be below its historical average rate in the second half of the forecast period".
In its quarterly Inflation Report, the Bank indicated that growth in two years time was likely to be around 2% a year, down from around 2.7% forecast from three months ago.
The governor added: "Unlike the Olympians who have thrilled us over the past fortnight, our economy has not yet reached full fitness. But it is slowly healing. Many of the conditions necessary for a recovery are in place, and the MPC will continue to do all it can to bring about that recovery. As I have said many times, the recovery and rebalancing of our economy will be a long, slow process. It is to our Olympic team that we should look for inspiration. They have shown us the importance of total commitment when trying to achieve a goal that may lie some years ahead".
On inflation, King added: "CPI inflation has continued to fall from its high of 5.2% last September, reaching 2.4% in June, and is expected to fall further this year. Twice in the past four years inflation has risen above 5% as a result of external price pressures. On both occasions the Committee said that inflation would fall back, and on both occasions it has ... Inflation is likely to fall further from its current level to be around or a little below target for much of the forecast period, as the impact of external price pressures eases, and domestic cost pressures remain subdued. At the forecast horizon, the risks to inflation around the 2% target are broadly balanced".
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