Bank and Treasury at odds on economy slowdown

Published on Thursday 22 May 2008 10:27

THE economy in the UK is heading towards its most protracted slowdown since the start of the 1990s, according to forecasts from the Bank of England.

The bank's prediction contrasts that of the Treasury for the first time since 2005.

Its central forecast is for economic growth to slip from 3.3 per cent in 2007 to 1.5 per cent in 2009. The Treasury predicted in March that growth would be between 2.25 per cent and 2.75 per cent in 2009 and 2.5-3 per cent in 2010.

The interest rate-setting Monetary Policy Committee at the Bank of England has said a long period of weakness was needed to bring inflation back under control.

The UK last saw such a sharp contrast between the bank and the Treasury in 2005, when the Treasury's pre-election forecast of between three and 3.5 per cent growth for 2005 was derided.

In its interest rates meeting minutes, released yesterday, the MPC said it "had to make clear to those setting prices and wages that the period of above-target inflation would be temporary, and that it was committed to returning inflation to the two per cent target".

Meanwhile, leading lender Nationwide today said new mortgage lending dropped by almost half last year.

The company, the UK's biggest building society, lent 6.7 billion on new mortgages in the year to April 4 – 40 per cent below the lending total for the previous 12 months.

Despite the reduced lending, its underlying pre-tax profits rose 17 per cent to 781.1 million.

Nationwide funded the lending entirely through retail deposits, which trebled to 9.1bn as worried customers sought a safe haven for their cash.

The group said its mortgage arrears were less than a third of the industry average as its focus on lower-risk borrowers paid dividends.