First Posted: 6/30/2013
(AP) Here is a look at Britain’s economy as Mark Carney becomes Bank of England governor;
STUCK IN A RUT
Britain’s $2.3 billion economy Europe’s third-largest has been slow to recover from the global financial crisis as the government cuts spending to control a burgeoning budget deficit. Gross domestic product grew just 0.3 percent in the first quarter of this year after shrinking during the previous three months. The Bank of England has forecast that growth will accelerate to 0.5 percent in the second quarter.
The desultory recovery is threatened by an economic downturn among Britain’s European trading partners, which may undermine efforts to rev up exports. Adding more peril, inflation is stuck above the central bank’s 2 percent target. Analysts expect it to hit 3.1 percent this summer, partly due to a weaker pound, which makes imports more expensive.
AUSTERITY: WAIT. THERE’S MORE
Prime Minister David Cameron’s government instituted an austerity program to make ends meet and shrink the size of the government. The respected Institute for Fiscal studies estimates that 1 million public sector jobs could be lost by 2017-2018. Even so, the deficit remains stubbornly high. The budget deficit was 6.3 percent of GDP in 2012, according to figures from the European Union statistics agency. That was better than 2011’s 7.8 percent but is still more than twice the EU limit of 3 percent at the same level as that of Cyprus. The IFS says Britain may be facing austerity until 2020.
WHAT TO DO?
The Bank of England slashed interest rates to 0.5 percent and pumped money into the economy. Since 2009, the bank has bought 375 billion pounds ($579 billion) of assets in a stimulus program known as quantitative easing. Some members of the bank’s nine-person Monetary Policy Committee, including outgoing Gov. Mervyn King, have argued that stimulus should be increased. Vicki Redwood, an analyst for Capital Economics, has suggested that policymakers were stuck in limbo ahead of Carney’s arrival.