Bank of England sees slow economic recovery in U.K.

The British economy has a 50-50 chance of returning to growth by the middle of 2010, as a recovery may be slowed by poor access to credit and weak global demand, Bank of England governor Mervyn King said Wednesday when presenting the bank's latest forecasts. In its quarterly inflation report, the Bank of England said the prospects for an economic upturn are weaker than it predicted just three months ago and that it forecast "a relatively slow recovery in economic activity." "The projected distribution for GDP growth is weaker than in the February Report, reflecting lower-than-expected activity in the first quarter of 2009, both at home and abroad, and a judgement that it is likely to take longer for bank lending to return to normal than assumed in February," said the report by the Bank's rate-setting Monetary Policy Committee. "The pace of the recovery may be slowed by a number of factors: the contraction in world demand and trade may be protracted; households may save more; and the availability of credit to companies and households may improve only gradually," the report said. "That said, the substantial scale of the stimulus in train may prompt a rapid rebound in activity." King said the inflation rate is likely to fall sharply in the next few months and probably return below the official target of 2 percent later this year. The bank said a fall in inflation would be driven in part by "diminishing contributions from food and energy prices." The bank's growth forecasts are gloomier than the governments. Treasury chief Alistair Darling, presenting the budget last month, predicted that Britain would return to growth later this year and would see gross domestic product rise by 1.25 percent in 2010. He predicted GDP would contract by 3.5 percent this year, more optimistic than the International Monetary Fund's latest project of a 4.1 percent drop. Jonathan Loynes of Capital Economics, said Wednesday's Bank of England report added a "sensible element of caution" about recent talk of signs of recovering. "Although the Bank still predicts a reasonably solid recovery in GDP growth next year, it has pulled its forecasts down a bit from February and warned that a sustained recovery could take some time to arrive. This appears at least partly to reflect a gloomier view on the outlook for bank lending," Loynes said. ___