Britain faces years of meagre economic growth coupled with rising prices, the Bank of England warned this week, adding that its ability to numb the pain was nearing its limit.
Governor Mervyn King left the door open for yet another cash injection of bond buying as he presented the central bank’s downbeat outlook.
He said the economy may shrink again at the end of this year, just one quarter after it exited recession.
But, he said, monetary policy could only go so far in helping the economy adjust to the new post-financial crisis world of debt reduction and weak growth.
His comments came as Britain’s hitherto resilient labour market showed signs of weakness, with the biggest rise in over a year in the number of people claiming jobless benefits.
The outlook makes dire reading for the coalition Government only weeks before Chancellor George Osborne is to give his half-yearly budget update.
Sir Mervyn warned that better times were still a long way off with “a slow and protracted recovery”.