Bank of England Governor, Sir Mervyn King, warns of the “risk of a storm heading our way from the Continent” as he flagged the eurozone as the greatest threat to the U.K.’s recovery.
King’s warning came as the Bank said the U.K. economy won’t return to pre-financial crisis levels before 2014, after it cut its growth forecasts for the next two years. The Bank now expects growth of around 0.8% this year.
And the squeeze on consumer spending is set to maintain its grip as the rate of inflation falls more slowly than previously expected, remaining above the government’s 2% target for the next year or so.
While the Bank said it didn’t see a “meaningful way” of factoring an extreme financial event – such as the collapse of the euro – into its projections, it said the biggest risk to recovery stems from the single currency bloc, the U.K.’s main trading partner.