British economic growth slower - could hit Irish exports
The economy of our biggest trading partner, the UK, will not grow as quickly as previously thought this year and may not fully recover for another three years, the Bank of England said today.
GDP is set to grow by around 1.4pc in 2011, the Bank said in its quarterly inflation report, down from its estimate of around 1.8pc in May.
The move could prove damaging for Irish export growth as a result.
Growth will remain sluggish in the near term, reflecting the continued squeeze on household incomes, but the Bank said it is likely to be above normal levels by 2014.
It warned that the near-term squeeze on consumer spending is set to continue and there is a "good chance" inflation will reach 5pc in the coming months, driven by rises in utility bills.
British bank governor Mervyn King blamed concerns over indebtedness in the eurozone and disappointing growth and fiscal policy in the US for a sharp downturn in the market mood.
"The outlook for growth in the world economy has deteriorated and, largely as a consequence, near-term growth prospects at home are somewhat weaker," Mr King added.
The Bank also noted that the Japanese tsunami and rises in oil prices had depressed growth in the short term and warned that some of the slowdown will be more persistent.
In addition, the debt crisis in the eurozone has the potential to impact significantly on the UK economy.
Mr King said: "There are a number of headwinds to world and domestic growth over the forecast period, not least the private and public debt overhang. And these headwinds are becoming stronger by the day."
Economists said the report appeared to endorse expectations that interest rates will remain at 0.5pc for a sustained period.
Vicky Redwood, senior UK economist at Capital Economics, said: "What's more, even the MPC's (monetary policy committee's) downgraded growth forecasts look optimistic to us, particularly in light of the market volatility seen since the Bank signed off the report.
"Accordingly, we still think that keeping interest rates low won't be enough and that more quantitative easing will be necessary."
Mr King warned that the global debt crisis, which has helped create turmoil in world stock markets in recent days, will take "a number of years" to be resolved.
He said: "The problems of indebtedness are large and not easy to tackle but we have to face up to it and find a way through it.
"2008 was not the end of the crisis, it was one stage of the crisis, and we are going through another stage now before, I hope, we come to an end of it."
He said the British public had suffered "a long and deep squeeze" on household incomes.
(Additional reporting PA)