Bank of England boss Mervyn King has said the grim GDP figures serve as a stark reminder that Britain’s recovery will be “choppy” as he braced consumers for a bleak year ahead.
In a speech at Newcastle’s Civic Centre, the Bank Governor warned Britons to expect inflation to rise to between 4% and 5% over the next few months.
Real wages will plunge back to 2005 levels as prices soar and the Government’s deficit-busting actions take effect, he added.
While the economy was “well placed to return to sustained, balanced growth”, Mr King outlined strong headwinds facing the economy in 2011.
Rising unemployment and declines in real earnings will hit spending in the private sector, with the public sector hammered by Government spending cuts.
But it was inflation that was the Governor’s biggest immediate headache.
He told the accountants’ business dinner on Tuesday evening: “Today’s GDP figures remind us that, as I said last year, the recovery will be choppy.
“Of more immediate concern to the Monetary Policy Committee is that we are experiencing a period of uncomfortably high inflation.”
He added: “With the standard rate of VAT rising to 20% this month, and recent further increases in world commodity and energy prices, inflation is likely to rise to somewhere between 4% and 5% over the next few months, before falling back next year.”
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