Inflation will remain above the Bank of England’s two per cent target this year before falling back substantially in 2012, the Bank’s agent in the West Midlands told an ICAEW business breakfast at Villa Park in Birmingham.
Graeme Chaplin said economic growth would stay “subdued” and, with plenty of spare capacity in the economy, recovery “is not going to feel like a boom”.
Speaking on the day the Bank’s Monetary Policy Committee decided to keep interest rates on hold again, Mr Chaplin said the rate of inflation had been hit by three external shocks.
Without this year’s rise in VAT, the depreciation of sterling and increasing commodity prices, the inflation rate would be well below two per cent.
“We still think GDP is going to grow over the next two or three years but we have not seen this scale of Government retrenchment in our lifetimes and we don’t know what impact that will have on the private sector,” he said.
At the same event Vipul Sheth, President of the Birmingham and West Midlands Society, outlined the findings of the latest ICAEW/Grant Thornton Business Confidence Monitor (BCM).
Despite the surprise fall in GDP at the end of 2010 reviving fears of a double-dip recession, the BCM survey
suggests positive quarterly growth in the first quarter of 2011.
Businesses in the West Midlands reported higher turnover and rising employment.
Average turnover is four per cent higher than a year ago, while gross profits and sales volumes are 4.5 per cent and 3.7 per cent higher respectively.
The rate of growth has also strengthened compared to last quarter. In the 12 months to Q1 2010 annual turnover, gross profit and sales volume were reported to have expanded by 2.4 per cent, 2.1 per cent and 1.9 per cent respectively.
Export growth also increased this quarter to 6.4 per cent, up from 3.7 per cent in the previous quarter and is the strongest rate of growth reported for exports since the summer of 2008.
Economy faces growing pains press release