British economy may never return to long-term GDP growth trend: Experts
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Economists in Britain have labelled the Bank of England's (BOE) quarterly economic forecast as a "fairly dismal prospect" and predicted that Britain may never again return to its long-term annual GDP trend growth of 2.5 percent.
The effects of the continuing eurozone crisis have been highlighted by the governor of the BOE Sir Mervyn King as the main threat to the British economy, which saw a double-dip recession as it struggles to overcome the financial crisis that began in 2008.
Britain's largest trading partner is the European Union, and continued uncertainty and worries over sovereign debt among eurozone countries affects Britain, even though it does not use the euro.
"The BOE quarterly figures are a fairly dismal prospect, and reflects a sad failure of policy both in Britain and also to some extent in the eurozone," Jonathan Portes, the director of economic think-tank National Institute for Economic and Social Research, told Xinhua.
Portes, a former chief economist in the cabinet office of the British government, said he believed governments in the eurozone and in Britain had failed in their legislation plans for banks and in economic policy.
This has combined with a failure to address the structural problems in the British and the European banking systems, said Portes, and had contributed to poor economic prospects in the short and medium term.
GDP growth will be positive next year, but will remain below trend, Portes forecast.
King's gloomy BOE forecast took into account that the boost to the economy given by the London Olympic Games is now fading and households are facing yet another year where incomes are likely to be squeezed by wages which fail to keep pace with inflation.
King said when he unveiled quarterly economic figures earlier this week that "growth is likely to remain sluggish, and inflation above target" and that the "road to recovery will be long and winding."
Earlier this week, the Office for National Statistics showed inflation was a continuing problem for Britain. Average pay, stripped of bonuses, grew by 1.9 percent year-on-year -- well behind inflation at 2.7 percent.
LONG-TERM PROSPECTS
The long-term prospects for the British economy were now differing significantly from historic trends.
"We think Britain is not likely ever to return to its long-term trend growth of 2.5 percent," Rob Harper, an economist at the Center for Economic and Business Research, told Xinhua on Friday.
"The long-term trend is now more likely to be 2 percent a year, because of the shifting competitiveness around the world to emerging economies of China and other nations like Russia, India, and Brazil," he added.
Harper said that the BOE was right to revise down its figures for growth next year, adding a decline in the British economy for the final quarter of 2012 was also a realistic forecast.
"Given that Q3 had such distortionary effects of Olympic ticket sales, and the extra Diamond Jubilee bank holidays in Q2, it was always going to be much weaker growth in the final quarter of 2012," said Harper.
Retail sales released this week backed up a gloomy forecast for short-term growth, said Harper. Figures fell 0.8 percent month-on-month in October, a result that was more serious than the 0.2 percent drop experts had predicted.
"We think there will a 0.1 per decline in GDP for 2012 Q4, said Harper.
Inflation was a problem that was likely to stalk the British economy throughout 2013, compounding the problems of low-growth.
"We have a very weak economic situation at the moment, and domestically-driven inflation is very weak. Inflation is being imported, inflation is going to be pushed up rises in electricity and gas prices," said Harper. Endi
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