Thursday, 15 November 2007

Economic growth to slow

It does look like interest rates are set to be cut in the UK even though inflation is expected to remain stubbornly high for some time. Reuters reports:

Interest rates will need to fall in the next few months, the Bank of England signalled on Wednesday, as it predicted a worsening outlook for both economic growth and inflation.

In the quarterly Inflation Report, the central bank's first formal look at the economic impact of the credit crunch, it said growth would slow sharply to just over 2 percent next year even if its main rate fell from the current 5.75 percent.

Price pressures were stronger because of soaring energy prices and a falling pound against the euro, putting inflation above the 2 percent target for most of next year before settling back in the middle of 2009.

The eurozone economy could slow too, although apparently not in the third quarter. From Bloomberg:

Economic growth in Europe accelerated more than economists forecast in the third quarter as company investment in factories and equipment rebounded.

The economy of the 13 nations that share the euro expanded 0.7 percent from the second quarter, when it grew 0.3 percent, the European Union's statistics office in Luxembourg said today...

The pickup in growth may prove short-lived as Europe's economy contends with higher credit costs stemming from the U.S. housing slump, the euro's increase to a record against the dollar and oil prices above $90 a barrel. The European Commission last week cut its forecast for euro-area growth next year to 2.2 percent from 2.5 percent...

Signs of weakening growth emerged toward the end of the third quarter. Industrial production in the euro area fell 0.7 percent in September, while manufacturing grew at the slowest pace in more than two years in October. In Germany, investor confidence fell to a 15-year low this month.

Yesterday's data on the US economy also pointed to some slowing. Retail sales rose 0.2 percent in October. Producer prices edged up 0.1 percent in October while prices excluding food and energy were unchanged.

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