Continuing weakness of euro area trading partners, slow real income growth and necessary public and private sector deleveraging are generating strong headwinds for the economy. Growth is expected to pick up gradually through 2013 and 2014 as gross fixed investment and exports gain momentum. Inflation expectations are above the inflation target, but inflation is projected to decelerate owing to persistent economic slack.
The Bank of England is providing strong support to the economy, and recent changes in the monetary policy framework increase the scope of the Monetary Policy Committee to adjust its monetary stance to economic developments. The pace of fiscal consolidation of about 1% of GDP per year in both 2013 and 2014 is appropriate and should be implemented as planned while letting automatic stabilisers operate in the event growth disappoints.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.
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