Iraq and Economy Depress Bank of England's Growth Forecast

13 February 2003

Britain's teetering economy will suffer further if America’s planned war on Iraq pursues its seemingly inevitable course, according to an update Wednesday by the Bank of England.

The nation’s independent central bank also warned that the house price bubble is set to burst, predicting a considerable cooling in the market over the next two years. Over this period, improvement in the economy – if any – will be slow.

“The unusual uncertainty relating to the duration and impact of a possible war in Iraq has led the Monetary Policy Committee to widen the range of possible outcomes,” the bank warned, predicting that growth in 2003 will reach 2.5% instead of its earlier prediction of 3%. Expansion will continue to slow through 2004 to 2%.

“Uncertainty surrounding military action in Iraq hangs heavily over the short-run outlook for the world economy,” said BoE deputy governor Mervyn King. He also predicted that annual house price inflation will fall from 25% to zero over the next two years.

Data sourced from: BBC Online Business News (UK); additional content by WARC staff