By TraderVox.com
Tradervox.com (Dublin) – In a statement to reporters today, the Bank of England Governor Mervyn King indicated his continued support for the Prime Minister David Cameron’s budget squeeze plan. In the same statement, King noted that UK’s economic recovery will be a slow process and he gave grimmer economic growth forecast. The UK government has introduced new spending cuts which along with the euro area debt crisis have slowed demand in Britain. In addition, the UK economy shrank in the second quarter by most in three years, signaling continued struggle to recovery from the double dip recession it is facing.
The Chancellor of the Exchequer and Prime Minister David Cameron have been vocal in fighting opposition Labor Party’s opinion that the fiscal program should be scaled back. They have held the view that the fiscal program is important in shielding the UK economy from effects of the euro area debt crisis. Speaking to press after publishing a central bank quarterly inflation report which showed that the Gross Domestic Product is projected to grow at about 2 percent in two years as compared with the projection in May of 2.5 percent, King said that there is no need for the government to have a plan B as the measures taken so far are yielding results.
King also explained in details his support for deficit-reduction program and cutting public spending. He also supports automatic stabilizers and the focus being made on tax rates. He added that the government has cut spending quicker than it was originally planned causing slower than expected economic performance. He, however, justified this saying that there will be less consolidation to do in the future. In the report, the BOE explained that economic contraction experienced in the second quarter were exaggerated by one factor but noted that the economy is likely to remain subdued in the short term. The report also noted that the UK economic growth outlook remains unusually uncertain due to the uncertainty in the euro area debt crisis.
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