Small and medium-sized businesses have been warned that the UK faces a ‘choppy' economic recovery.
Mervyn
King, governor of the Bank of England, made the comment as the Bank
lowered its economic growth forecast and said inflation would stay
higher for longer than previously forecast.
The Bank now expects the economy to grow by 2.5% in 2011, down from its previous forecast of about 3.4%.
Governor Mervyn King has already warned a "sustained" recovery is uncertain despite the 1.1% growth in the economy between April and June - the best figure for four years.
Mr
King also recently stressed there was a "considerable distance to
travel" before interest rates move from their current record low of 0.5%.
The VAT rise in January next year is expected to keep inflation well above the Bank's 2% inflation target for most of next year.
The most recent official figures showed that Consumer Prices Index inflation stood at 3.2% in June, above the target rate. Retail Prices Index inflation, which includes housing costs, was higher still at 5%.
King
cited a lack of bank lending as an inhibitor of economic growth.
Despite high street banks such as HSBC, Lloyds and Barclays recently
announcing profits in the first half of the year in the billions, many
small firms feel that their access to credit has been stifled.
Some
economists have warned that the UK could enter a ‘double-dip' recession
as the government's sharp cutbacks are felt. However, figures released
today revealed that unemployment UK declined for the second successive
month by 49,000 to 2.46m in the three months to June.
