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		</div><p><a href="http://londonglossy.com/wp-content/uploads/2011/01/king-warns-of-choppy-recovery.jpg"><img class="alignnone size-full" title="Mervyn King warned Britain's recovery will be 'choppy'" src="http://londonglossy.com/wp-content/uploads/2011/01/min-king-warns-of-choppy-recovery.jpg" alt="Mervyn King warned Britain's recovery will be 'choppy'"/></a></p>
<p>Bank of England boss Mervyn King warned that grim GDP figures serve as a stark reminder that Britain&#8217;s recovery will be &#8220;choppy&#8221; as he braced consumers for a bleak year ahead.</p>
<p>In a speech at Newcastle&#8217;s Civic Centre on Tuesday night, the Bank Governor said Britons should expect inflation to rise to between 4% and 5% over the next few months.</p>
<p>It concluded a gloomy day in which it was also revealed that the UK economy unexpectedly shrank in the fourth quarter</p>
<p>A shock 0.5% plunge in gross domestic product (GDP) between October and December was blamed on severe weather last month which triggered a drop in demand for the key services sector, which makes up more than 75% of the economy.</p>
<p>Analysts warned the surprise decline &#8211; the first since the third quarter of 2009 &#8211; seriously damaged prospects for the economy as it takes the strain of the Government&#8217;s sharp austerity measures. It also raises the prospect of stagflation &#8211; a period of high inflation coinciding with a stagnating economy.</p>
<p>On Tuesday night, Mr King warned that real wages will plunge back to 2005 levels as prices soar and the Government&#8217;s deficit-busting actions take effect. And while the economy was &#8220;well placed to return to sustained, balanced growth&#8221;, Mr King outlined strong headwinds facing the economy in 2011.</p>
<p>Rising unemployment and declines in real earnings will hit spending in the private sector, with the public sector hammered by Government spending cuts.</p>
<p>But it was inflation that was the Governor&#8217;s biggest immediate headache. He told the accountants&#8217; business dinner that the latest GDP figures &#8220;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.&#8221;</p>
<p>He added: &#8220;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.&#8221;</p>
<p>His move to increase Bank inflation expectations yet again will heap further pressure on the MPC. There have been calls for action after inflation rose to 3.7% in December, far higher than the Bank&#8217;s 2% target.</p>
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