The Bank of England on Wednesday forecast that the British economy would grow faster than expected in the coming months, but stressed the weak nature of the recovery.
Britain’s GDP growth is expected to strengthen to about 0.5 percent in the second quarter of the year, but the recovery will be uneven, the central bank said in its latest quarterly report.
It also forecast that annual inflation would likely peak at 3.2 percent in the summer, but would probably not fall below its 2 percent target level until early 2016.
In his last report before he hands over the reins to Bank of Canada Governor Mark Carney in July, Bank of England Governor Mervyn King told reporters that growth would be “a little stronger” than predicted in February.
“Of most significance today is that there is a welcome change in the economic outlook,” King said at a press conference for the unveiling of the report.
“Today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago,” he said.
“That is the first time I have been able to say that since before the financial crisis, but this is no time to be complacent — we must press on to ensure a recovery and bring down unemployment,” he added.
Recent data showed that the UK’s economy — which has been hit hard by state austerity measures and the eurozone debt crisis — escaped from falling into its third recession since the 2008 global financial crisis.
British GDP rebounded by 0.3 percent in the first quarter of the year, after shrinking 0.3 percent in the fourth quarter of last year. A recession is defined as two straight quarters of contraction.
That meant the British economy was essentially flat over the six-month period.
British Chancellor of the Exchequer George Osborne later told business leaders in London that the news was a vindication of his government’s austerity policies and pledged to stick to the plan despite calls for a debt-fueled public spending stimulus.
“Our plan is working,” he told guests at the Confederation of British Industry’s annual dinner. “Now is not the time to lose our nerve.”
“Those who argue that because the UK has its own central bank and the ability to print money the UK cannot lose market confidence are dangerously wrong,” Osborne said.
“If financial markets sensed that the UK was going to print its way out of trouble, the response in the markets would be catastrophic,” he added.