Picture painted by Inflation Report too optimistic

15th May 2013

Commenting on the Bank of England's Quarterly Inflation Report, David Kern, Chief Economist at the British Chambers of Commerce (BCC) said: -While we have always felt that the earlier gloom over the UK economy has been exaggerated, the positive trends outlined within Governor King's final Inflation Report appear to be too optimistic.

We accept that growth is likely to remain positive, but believe that the speed of the recovery will be somewhat slower than the Governor indicated. The grim eurozone data also shows that our exporters will face obstacles over the year ahead. We also think that the inflation outlook is slightly worse than the report suggests, and future falls in 2013 and 2014 will not happen as quickly. -With the flexible monetary remit given to the MPC by the Chancellor, and the likelihood of policy changes after the arrival of Mark Carney as Governor, it is important that the MPC does not encourage a faster sterling devaluation to support exports - even if inflation rises temporarily. The unusually weak earnings figures highlight the squeeze on businesses and consumers, and there is a risk that the small benefits to exports will be outweighed by damage to domestic demand that can harm growth.

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