Slowing UK economy to remain flat for two years

LONDON, Aug. 13 (Chinese media) -- Output growth in the

United Kingdom eased in the second quarter and the central bank projects on

Wednesday that the economy is facing further slowing in the third quarter, even

a flat grow in the coming two years.

The monetary policy committee of the UK central bank,

Bank of England, projected that the output to be "broadly flat over the next

year or so, after which growth gradually recovers."

The Bank of England building in central London. Output growth in the United

Kingdom eased in the second quarter and the central bank projects on

Wednesday that the economy is facing further slowing in the third quarter, even

a flat grow in the coming two years.(Chinese media/AFP file

Photo)
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The slow down is mainly caused by the decelerating

consumer spending as households' real incomes were squeezed, the bank said in

its quarterly inflation report released in the morning.

While residential and business investment prospects

deteriorated, global economic activity was a little firmer than expected, but

the near-term outlook for the advanced economies remained subdued, the report

said.

The inflation report said that CPI inflation rose

markedly, as energy and import cost pressures increased.

Household inflation expectations are rising, with

earnings growth remained moderate, it said.

In the central projection, higher energy, food and

import prices push inflation substantially higher over the next few months,

though it might then fall back sharply to a little below the 2 percent target in

the medium term.

But considerable uncertainty surrounds this outlook,

with the main risks to inflation -- from a more pronounced slowdown in demand on

the downside, and from the possible impact of a prolonged period of elevated

inflation on pay pressures and inflation expectations on the upside -- have both

increased since the bank's May report, Bank of England said.

Overall, the balance of risks to inflation is judged

to be on the upside, the report said.

Increases in domestic energy and import prices are

likely to erode households purchasing power further over the next year or so,

the report said, listing tight credit conditions, marked weakness in the housing

market as the main reasons.

The outlook for investment deteriorated as investment

in dwellings declined in the first quarter of 2008 when he housing market

weakened sharply and house builders scaled back construction, its said, adding

that dwellings investment is likely to exert a sizable drag on GDP growth in the

near term.

Though the expansion of global economic activity in

the first half of 2008 was somewhat stronger than expected, the near-term

prospects for activity in the advanced economies remained fragile, it said.

It is preliminary estimated that quarterly GDP growth

eased to 0.2 percent in the second quarter, while the CPI inflation increased to

3.8 percent in June, the report said.

Manufacturing and service sector output prices rose,

and near-term pricing intentions of businesses remained elevated, particularly

in the manufacturing sector, the central bank report said.

An increase in longer-horizon expectations would be

costly to reverse and would probably require a more pronounced slowdown in

economic activity in order to achieve the inflation target, while the inflation

outlook is unusually uncertain, it said.

The central bank noted that the immediate prospect

was for CPI inflation to move substantially further above the 2 percent target,

and for output to be broadly flat.