King warns jubilee will hit economy

 
Tim Wallace
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THE JUBILEE bank holiday could push the economy back into contraction in the second quarter of the year, Bank of England governor Sir Mervyn King warned yesterday.

An extra day off work to mark the Queen’s 60th year on the throne will hit output, King told a House of Lords committee, although he said it would be clawed back in the third quarter.

“We do expect quite possibly a fall in output in the second quarter, followed by a rise again in the third quarter,” the governor said.

Meanwhile, King’s colleague Ben Broadbent played down any boost to the economy from the Olympics, saying it would be “relatively small”.

“There will be people spending more, such as overseas visitors, but lots of people will be taking holiday anyway and the effect in total will be small,” he explained.

Last month, King said growth for the year is likely to be slow and erratic. Yesterday he said the ongoing impact of the Eurozone crisis was keeping bank funding costs high, and did not rule out future rounds of quantitative easing to pump more money into the sluggish economy.

However he was cautiously upbeat on longer-term growth prospects.

“I see no economic reason why we cannot in the long run go back to the sort of growth rates we had before the financial crisis. Once we come through this crisis we will be able to get back to that sort of period again, but it will take some time,” he said.