Bank of England chief Mervyn King told reporters during his quarterly inflation report today that the euro crisis is likely to get worse, adding that the U.K. government and the Bank of England are already developing “contingency plans” to be implemented should the crisis spiral out of control.
“There are major problems ahead,” he is quoted as saying in a report from Bloomberg. “There are major credit losses to be realised. Whatever happens there will be difficulties ahead that will undoubtedly affect us.”
King predicted that inflation in the U.K. will fall below 2 per cent in the next two years, but thinks that there are “good reasons” for domestic growth to recover.
Nearly all his statements were tempered with concern about the crisis on the Continent, affirming that the U.K. is “not exempt” from the continuing effects of the crisis.
He added that is “not sensible” for the bank to see only two outcomes for the eurozone—jubilation if the monetary union stays together and “disaster” if it falls apart.
King added that the BOE is ready to step in with more quantitative easing should the situation deteriorate.
King’s statements follow an announcement by the Office for National Statistics that unemployment in the U.K. had unexpectedly fallen in April to 8.2 per cent.