Bank of England slays zombie company fears

LOW INTEREST rates have not created a hoard of zombie firms slowing the economy, a report from Bank of England researchers said today.

Economists are worried that rock bottom rates and forbearance by banks has kept firms alive when they have no long-term future, preventing new firms setting up.

But the Bank’s quarterly report says the hit to productivity is small.

“Productivity among SMEs is estimated to be 40 per cent lower in companies in receipt of forbearance,” it said. “But since forbearance is estimated to cover only six per cent of borrowing companies, the implied effect is to depress private sector productivity by around one percentage point.”

The Bank also used the report to explain its questionable forecasting record since 2010, blaming energy and import prices for much higher inflation than was expected.

It referred to “unexpectedly weak effective supply” as a major reason for repeatedly above-target inflation, alongside rising university fees.

On GDP, the Bank seems to offer a little comfort to George Osborne, suggesting that forecasts for growth have largely been missed due to a shortfall in global demand.