Gary Duncan, Economics Editor, and Philip Webster, Political
May 15, 2008
Britain faces two years of economic pain and could
sink into recession, the Governor of the Bank of England
has said in a stark warning to the nation.
Mervyn King gave notice of a further squeeze on living
standards, forecasting that inflation would climb to
3.7 per cent and remain high for two years. “The nice
decade is behind us,” he said.
Yet within hours of this stark assessment, Gordon Brown
staked his survival on the economy. He said: “I ask,
and indeed expect, to be judged by this test: our stewardship
of the British economy and building a lasting prosperity
by releasing untapped potential.”
Mr King said that households faced a protracted spending
crunch as food and fuel bills continued to soar. He
said that the severe financial strains would deepen
the sharp economic downturn already taking hold and
ruin chances for steep interest rate cuts to boost growth.
The Bank cut forecasts for growth sharply, predicting
that this would all but grind to a halt later this year.
The City said that interest rates might not be cut again
at all this year.
The Governor insisted that the Bank did not expect
a recession but conceded for the first time that one
could not be ruled out.
His comments came as Mr Brown continued his relaunch
by setting out a draft parliamentary programme for next
year of 18 Bills, including direct measures to help
the struggling housing market.
The Prime Minister, speaking later in Bermondsey, southeast
London, insisted that Britain would “emerge from the
global slowdown stronger and better, both as a country
and a government”.
He put reform of public services and welfare at the
heart of his legislative programme for the coming year,
promising to give ordinary people more control over
health-care, schools and policing.
The Times has learnt that Mr Brown was warned by one
of his closest advisers against scrapping the 10p tax
rate before the 2007 Budget, but he overruled the aide,
saying that he better understood the politics of the
David Cameron accused the Prime Minister of stealing
Conservative policies. The Tory leader said that the
“relaunch” proved only that the Government had “run
out of road, run out of money, run out of ideas”. He
dismissed the draft legislative programme as “yet another
attempt to save the Prime Minister’s skin” before next
week’s Crewe & Nantwich by-election, where the Conservatives
are pressing to overturn a Labour majority of just over