BoE cuts growth estimates

London: The Bank of England (BoE) yesterday cut its forecast for British growth and warned that the Eurozone debt crisis was the biggest threat to recovery, even if a credible solution is found.

Gross domestic product (GDP) was predicted to grow by just under 1.0 per cent this year, down from the central bank's previous forecast of just over 1.0 per cent, the BoE said in a quarterly report.

It also slashed the 2013 growth estimate to 2.0 per cent, down from previous guidance for 3.0-per cent expansion. Annual inflation was forecast to remain stubbornly above the central bank's 2.0-per cent target until mid-2013.

"The prospects for UK growth remain unusually uncertain," the BoE said in the eagerly-awaited report.

"The single biggest threat to the recovery stems from the challenges within the euro area, in particular the need to reduce the indebtedness and improve the competitiveness of some member countries."

‘Necessary adjustments'

It added: "Even if a credible and effective set of policies is successfully implemented, the scale of the necessary adjustments suggests that a prolonged period of sluggish growth and heightened uncertainty is likely. "A failure to implement such policies could have severe implications for the UK economy."

The BoE said that its rate-setting Monetary Policy Committee (MPC) could not predict a worse-case scenario for the ongoing sovereign debt crisis in the Eurozone, which is Britain's main trading partner.

"As was the case in past reports, the MPC sees no meaningful way to quantify the size and likelihood of the most extreme possibilities associated with developments in the euro area."

The central bank also confirmed that it was still working on contingency plans for the potential break-up of the Eurozone.

"Contingency plans are being discussed and have been for some time," King told reporters at a central London press conference.

He did not elaborate but added that the plans were being discussed by the BoE, the Treasury and the Financial Services Authority watchdog.

The outlook remained highly uncertain as a result of storm clouds from the Eurozone crisis, King added.

"We are navigating through turbulent waters, with the risk of a storm heading our way from the continent... We don't know when the storm clouds will move away."

The gloomy news from the Bank of England was only partly offset by upbeat official data suggesting that the labour market was improving.

Jobless benefits

The number of Britons claiming jobless benefits sank unexpectedly in April and by the largest amount in nearly two years, data showed Wednesday.

The so-called claimant count of people registered for unemployment benefits fell by 13,700 last month to reach 1.59 million, the Office for National Statistics said in a statement. That was the biggest drop since July 2010 and confounded market expectations for a gain of 4,500 people, according to analysts polled by Dow Jones Newswires. It was also the second monthly decline in a row.