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Economic Outlook 2013 – material sourced from publications issued by the Bank of England.
In the United Kingdom, the economic recovery remains weak and uneven. Domestic demand increased moderately during 2012, but this was largely offset by a pronounced fall in exports. Employment continued to grow strongly. The weakness of productivity suggests that the financial crisis may still be weighing on the current effective supply capacity of the economy as well as on demand.
The MPC judges that the growth of both demand and effective supply are likely to pick up gradually over the next year or so, supported by past asset purchases, an easing in credit conditions aided by the Funding for Lending Scheme, and a continuing improvement in the global environment. But the legacy of adjustment and repair left by the financial crisis means that the recovery is likely to remain weak by historical standards.
The main risks to the recovery continue to emanate from abroad. Although financial tensions have abated since last summer, there remains a risk that the required adjustments to indebtedness and competitiveness within the euro area occur in a disorderly manner. Although the Committee’s exclude the more extreme outcomes, they embody the assumption that those adjustments will nevertheless be associated with a prolonged period of weak growth and heightened uncertainty.
Taking those risks into account, the Committee’s best collective judgement is that the economy is likely to see a modest and sustained recovery over the next three years