By Marcus Leach
As was widely expected the Bank of England has cut the 2011 growth forecast for the UK to 1.5% as the global economy continues to struggle.
Mervyn King, the Bank Governor, slashed the forecast by 0.3% as he said the economy has continued to weaken, mainly due to the debt crisis that has hit Europe.
“There are rumours that ratings agencies may view any growth downgrade as an excuse to reappraise the UK’s credit rating lower. If so, it will hamstring Osborne’s argument of austerity to prevent “becoming like Greece," Jeremy Cook, Chief Economist at foreign exchange broker, World First, told Fresh Business Thinking.
“The fact of the matter is that the UK is like most developed economies at the moment, in that it is not experiencing meaningful growth. However, slow growth is preferable to the crushing debts that an expansionist fiscal policy would undoubtedly bring to the UK.”
Mr King went on to say that inflation would continue rising through the autumn before falling back next year.
At present some of the biggest risks to economic growth come from the eurozone, where several countries are trying to shore up their fiscal and banking systems.
"Were they to crystallise, the risks emanating from the euro area have the potential to have a significant impact on the UK economy," Mr King said.
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