Sir Mervyn King cautiously optimistic but warns of economic ‘zig-zagging’

A FURTHER bout of money printing to help boost Britain’s ailing economy is far from certain, analysts said yesterday, as the governor of the Bank of England sounded a note of cautious optimism.

Unveiling the central bank’s latest inflation report, Sir Mervyn King said the UK economy was likely to “zig-zag” in and out of growth this year but would avoid tipping back into recession – defined as two consecutive quarters of contraction.

The bank raised its key medium-term inflation forecast to just below its 2 per cent goal, suggesting that another dose of quantitative easing (QE) may be less certain than economists had expected.

King warned the economy still faced “choppy waters” though, adding that there was “no easy remedy” to the consequences of the financial crisis.

David Tinsley, UK economist at BNP Paribas, said the report “didn’t sound like a forecast that is preparing the ground for more QE”. He said: “Overall, this inflation report appears quite deliberately pitched to damp expectations for further asset purchases after the £50 billion increase in February.”

Other economists said the pressure to boost the economy, which slipped back into contraction in the fourth quarter of 2011, remained firmly on the bank.

Howard Archer at forecasting group IHS Global Insight said there was a reasonable chance that the QE programme would be extended later in the year.

“We still think additional QE is more likely than not,” he noted, “reflecting our belief that the economy will essentially flat-line over the first half of the year despite some recent signs of improvement and then only pick up gradually in the second half.”