Blame Game: 'UK Recession Is Queen's Fault'

Sir Mervyn King has come under fire in recent months for apparently trying to shift the blame for the problems facing the UK economy.

Today, he added a couple of new scapegoats: the euro crisis and, unlikely as it may seem, the Queen.

The Bank of England suspects the recession may last into the second quarter of the year, because the extra bank holiday for the Diamond Jubilee knocks a day of work (and hence economic output) off that quarter.

As a result, the double dip recession, which has now run for two quarters, could well last for a full nine months.

However, a rather more profound excuse is that the eurozone crisis is already starting to weigh on activity in the UK.

There was a striking change in tone from the Bank Governor in this Inflation Report. 

Not only is he now referring to the "euro area tearing itself apart", even a best-case scenario still poses a threat for UK Plc.

That best-case scenario, mapped out in the text of the report, makes for depressing reading.

"Even if a credible and effective set of policies is successfully implemented, the scale of the necessary adjustments suggests that a prolonged period of sluggish growth and heightened uncertainty is likely," it says.

What's different this time around is that the very threat of a worse outcome is, according to the Bank, "likely to affect economic activity over the forecast period, for example through its effect on asset prices, including the exchange rate, bank funding costs, and confidence; such effects are captured in the MPC's projections."

As such, the Bank has cut its growth forecasts. 

It's also significant that despite inflation being higher in the coming few months (suggesting it will continue to cut into families' incomes), it is forecast to be slightly below the Bank's 2% target in two years' time.

In normal times, this indicates that the Bank is prepared to cut interest rates (for which, these days, we should read more quantitative easing) in the coming months.

So despite its decision to pause QE earlier this month, don't be surprised if the prospect of more money creation looms in the not-too-distant future.

Expect the excuse when that happens to be the euro - not, in all likelihood, Her Majesty.