Eurozone crisis threat to UK growth

The Bank of England warned today that the eurozone debt crisis is the “single biggest risk” to the UK recovery as it forecast a dramatically increased threat of a double-dip recession next year.

Its quarterly inflation report revealed a greater chance of the economy contracting in the first three quarters of 2012, compared with its August forecasts, as eurozone and banking concerns and squeezed household budgets continue to weigh on growth.

The Bank slashed its central – or most likely – growth estimate to no more than 1% in both 2011 and 2012 from previous forecasts of around 1.5% and 2.2% respectively.

The worsened prospects for the UK economy mean inflation is likely to fall far quicker than previously estimated, hitting the Government’s 2% target in the second half of next year before falling to as low as around 1.3% in 2013.