A speech last night by the Deputy Governor of the Bank of England said that there was a 'three in four chance that the economy would contract by more than the 4% predicted by the Governor last Wednesday'. I'm left speechless - in less than a week the Bank of England has torn up its forecast for the economy! It now seems to be hinting that the worst case scenario it outlined in its quarterly inflation report of a 6% fall this year with further meaningful declines in 2010 before stabilization in mid-2011 is the most likely outcome. This would be a decline of nearly 10% of GDP with a huge impact on tax receipts. No wonder the budget has been delayed.
Spoke to an old friend in Moscow last night. Industrial output was down 20% in January. Gold and diamond output is falling sharply because the mines can't access finance either from the government or the banks. With the scale of the slowdown in Russia now apparent I'm coming round to the view that both Germany and Italy will see their exports to the country fall off a cliff - look for German and Italian GDP growth of -4% this year. Civil unrest in Russia may rise as the number of unpaid workers in the state sector skyrockets.