Bank warns of ‘long shadow’ over growth

The need to carry out major restructuring in the world economy may significantly hold back the recovery, the Bank of England has warned.

Such comments were contained in the minutes of this month's Monetary Policy Committee (MPC) meeting, which repeated the warning of the MPC's quarterly inflation report earlier this month that the economy may shrink again in the final quarter.

Assessing the prospects for the future, the minutes stated: "The recovery was likely to be subdued by historic standards, reflecting the broader causes and repercussions of the financial crisis.

"In particular, the need for rebalancing in the global economy – especially in the euro area -looked set to cast a long shadow over growth."

The minutes added that while domestic spending looked set to rise and credit conditions were becoming "more favourable", this will take time to bring significant benefits in the real economy.

In addition to this, the document warned that the prospects for economic growth had weakened since August.

One reason for this is the squeeze on incomes caused by increased energy prices, while another is that business surveys suggest underlying growth is weakening.

For those struggling in debt, the idea that economic growth may provide a swift solution may therefore have receded. That means the chances of enjoying a bigger pay rise, enjoying more income in a small business, getting overtime or being able to find a better job may be much weaker than might be hoped.

If the debt has become unpayable, an individual voluntary arrangement may be the best approach. This involves an agreed reduction in monthly payments limited to a period of five years or less, which is binding on all creditors if three-quarters of them agree to the deal.

This is a form of insolvency, so advice should be sought before deciding if this is the best course of action.

According to Insolvency Service figures, there were 12,668 IVAs in England and Wales during the third quarter of 2012, up from 11,346 in the second quarter.

By James Francis