17 May 2012

UK central bank warns of euro zone storm

9:43 am on 17 May 2012

The Bank of England has cut its growth forecast for this year to 0.8% from 1.2% saying the euro zone storm is still the main threat to Britain's recovery.

Bank governor Sir Mervyn King says the euro zone is tearing itself apart without any obvious solution and Britain would not be unscathed.

"The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2% strikes me as wholly unrealistic," Sir Mervyn said.

He also confirmed the Bank has been making contingency plans for the break-up of the euro zone, the BBC reports.

Separately, British Prime Minister David Cameron also spoke of the financial storm clouds across Europe, warning that euro zone leaders must act swiftly to solve its debt crisis or face the consequences of a potential break up.

The Bank's report said the euro zone crisis was not the only issue weighing on the UK economy, with volatile energy and commodity costs, and the squeeze on household earnings also having an impact.

Sir Mervyn said this meant the UK economy would not return to pre-financial crisis levels before 2014.