The Old Lady is becoming more pessimistic

Faisal Islam, Channel 4’s economic correspondent,  is one of the journalists who best understands what the Bank of England’s institutional view is. So it is interesting to see him writing this today:

“I’m convinced that at Threadneedle Street, they were shocked by the limpness of Britain’s exit from recession. They have been running their big computer model in the past weeks. When it reveals new economic forecasts next Wednesday, we are likely to see a marked downgrade to Britain’s economic prospects.”

Politically this could have an impact as Labour’s, to put it charitably, extremely optimistic growth forecasts are what allow it to claim that it will cut the deficit in half in four years. If those forecasts become even more discredited, they might have to be revised downwards in the Budget. This would scupper the government’s deficit reduction plan.