Conversely, inflation is expected to stay above the target of 2% at least for the next year which is not good news for households that are already struggling financially. According to Sir Mervyn, the economy will remain slow as well as uncertain and he refers to the current crisis in the eurozone as being a ‘storm’ heading in the direction of the UK.

He goes on to say that the UK has survived the biggest downturn since the 1930’s and that the loss of the eurozone, the UK’s leading trading partner, there will be a huge impact on the economy at home. There is no way to ‘quantify’ what the dissolution of the EU would do to the economy of Great Britain, but it will certainly have a dire consequences.

Although there is no way of telling when this dark ‘cloud’ will move past, again his metaphor, but he has every reason to expect that growth in the UK will indeed recover and that inflation will drop once again. Sir Mervyn then says that Great Britain will be ‘buffeted by winds’ and there is no way to know from which direction they will come, but come they certainly will.

In the end, recovery is made harder because of the uncertainty in the EU, but once the story unfolds, it will be easier to get a grasp on what needs to be done.

On Monday, financial markets were in turmoil as investors prepare for Greece’s imminent exit from the single currency and just the day before it was admitted that the ‘elite’ European policymakers were seriously considering the possibility that the single currency may be doomed. Markets were tumultuous as oil, shares and the euro were heavily unloaded by investors who fully expect Greece to depart the EU.

Again, Greece is stalling but EU leaders have only given President Karolos Papoulias until Thursday to join the continuing talks and broker a deal. Furthermore, Chancellor Osborne warns that even the thought of Greece exiting the euro is creating havoc in economies throughout all of Europe. He further believes that the crisis unfolding in the eurozone is significantly impacting growth in the region.

As a result of the uncertainty surrounding Greece’s departure, borrowing rates are skyrocketing for Italy and Spain because of the very real fear that they too will succumb to the contagion that very well may spread throughout all of southern Europe. On Monday, the FTSE 100 Index dropped more than 100 points, losing approximately two percent of its total value. As well, Madrid, Athens, Paris and Frankfurt saw huge falls in prices of shares.

At the end of the day, investors sought out safe havens in Germany (bonds) and the Great British Pound which benefited those two countries to some extent. Unfortunately, there is still a great deal of concern about the future of the EU.

With new leadership in France and Greece’s protests against austerity, there is truly growing concern that both countries will default on loans, forcing their exit from the single currency. In fact, the value of some of Britain’s largest companies decreased by £25 billion as traders rushed to dump what they view as ‘risky assets’ in order to place their investments in safer markets. This has triggered what is being referred to as a ‘fresh crisis.’

Since the beginning of this year, the EU did see a period of relative stability but all this came to a screeching halt after France’s election of a new president who rose to victory on his anti-austerity stance. With Greece mired in a hung parliament, concerns are mounting that both countries will default on bailout loans.

An emergency meeting of the EU leaders has been called for May 23 in which the president of the EU, Herman Van Rompuy, looks to open discussion on fostering growth amidst popular complaints against austerity measures in those countries. Traders are concerned that political unrest will prompt an insurmountable debt crisis, especially in France and Spain, so they are seeking safer havens for their investments.

The market is focused on safe havens at the moment and with Greece sure to challenge EU authorities in June and France’s anti-austerity leadership, investors are pulling their backing which has taken a huge toll on UK businesses. Throughout all this, Spain is expected to ask for further funding whilst all eyes look towards Germany to do more to help struggling countries. Whether or not the EU powerhouse will live up to expectations is yet to be seen.

This could be devastating news for the nation as it finally appeared as though manufacturing was back on track and services were picking up as well. Unfortunately, the growing debt crisis in the eurozone is wreaking havoc not only in the UK but around the globe as well, evidenced by yesterday’s markets.

Although the UK is not part of the single currency, they have been part of the bail out with quantitative easing which means that economic problems on the continent will surely affect Britain. As Holland’s president resigned and Nicolas Sarkozy is probably on the way out, Angela Merkel is continuing her drive for austerity in the EU.

Tomorrow’s data will show if austerity is working in the UK and if it is then Ms Merkel has a valid point. If not, if the UK is plunged into a double-dip recession, this does not bode well for Merkel or Sarkozy who is battling it out in a second round election for his job. No one knows what tomorrow will bring, hope or gloom, but at the moment it is not looking good.

With a turnaround in just 2 days in their predictions, the BoE has everyone waiting with baited breath to see what shape the UK economy is in. It can only be hoped that a recession is avoided as austerity is already crippling many social programmes and killing jobs by the tens of thousands.

Whilst this is bad news for the single currency, it appears to be good news for the USD (United States Dollar) as traders were spooked on the Forex market and made a mass exodus from the euro in favour of what was perceived to be the much safer US currency. Even the German Dax fell by greater than three-and-a-half percent and oddly enough, the French Cac only dropped 2.8.

The fall of the coalition government of the Netherlands combined with weak output in the manufacturing sector of Europe added fuel to the fire. Then there is concern over the upcoming French presidential election which was brutally reflected in the Cac trading at only 81.5p against the GBP.

As the crisis in the eurozone escalates, investors are starting to panic and this is increasing uncertainty in the region. In the end, it appears as though the ECB’s efforts to stabilise the economy in the eurozone has fizzled out, even after huge amounts of money were pumped into the economy in another round of quantitative easing.

Since the final month of 2011, at least €350 billion was pumped into the eurozone but still the ECB has been the target of criticism for not following the example of the BoE and the United States Federal Reserve. It seems as though no one wants to own a part of the blame which at the moment is being levelled at the ECB for lacking in action that was decisive. All eyes are now on the market as it opens zone by zone across the continent.

At the moment, only 40.8% are in accordance with the deal and that is less than half the number needed to prevent default. During all this turmoil, German finance minister, Wolfgang Schaeuble has been talking to the finance minister from Greece, Evangelos Venizelos as to whether it would be a prudent move to have Greece exit the euro. According to Schaeuble, Greece has not been adding what is necessary to be a member of the common currency.

At the moment, creditors are being given until 8PM GMT to agree to the bond restructuring which is on record as being the largest ever attempted. However, 95% of those creditors must be in agreement which would amount to a loss of about 75% and if it they can agree, it will be counted as voluntary. Even so, analysts are saying that this is asking too much of creditors. At some point the Collective Action Clauses may be called up which would impose acceptance if anywhere between 66 and 95% can agree to accept terms of the deal. This would constitute default in the eyes of rating agencies, however.

According to the debt management agency in Greece, there simply aren’t the funds available to satisfy those creditors who will not vote in favour of the deal and at the same time, pension funds in Greece are saying they will not approve the swap either. If this bond swap isn’t agreed upon, Greece could be heading towards default and perhaps a forced exit from the euro.

David Riley, who is head of sovereign ratings, stated that the verdict on those countries could be impacted by as much as two notches. Italy is the centre of focus at the moment as they are the third largest economy in the eurozone and as a result would be too costly to bail out, and as such is on the ‘front line.’

Rile further stated that it will be at the gates of Rome where the future of the single-currency euro will be decided. Unfortunately, even though Italy has a fairly low deficit in their budget, they still have massive debt to contend with and must raise up to €360 billion in tin the markets.

One of the reasons Italy has experienced problems in recent months is because investors have started demanding ever higher interest rates whilst lending money. Added to that was the fact that Italy’s prime minister of many years was forced to resign in the latter part of last year and these have worked together to set the backdrop for a dark economy.

On the upside, Mario Monti who has earned respect as an economist is now heading the government. Even so, Monti has a challenge ahead of him to convince investors that Italy has a proper strategy that is geared towards curbing spending along with a strategy to grow the economy.

These are not the only six eurozone countries with ratings on the line as France is also facing problems with the burden of its debt. Fortunately, as the second leading economy in the eurozone, France’s AAA rating is not yet in jeopardy. By month’s end, a clearer picture of the eurozone’s ratings should be evident.

In fact, the Euro fell by approximately one percentage point against both the yen and the dollar. In relation to the USD, the Euro is now being valued as being worth $1.291. The reason for this appears to be that banks in the eurozone are hoarding bailout cash which was injected into the economy the ECB, the European Central Bank. They are doing this to pad future problems, which wasn’t the reason for the bailout in the first place. Te money was distributed to stimulate the economy in the eurozone by lending it out.

Earlier last week Italy was bringing cheerful expectations since they underwent a debt auction that reduced the country’s short term borrowing by approximately 50%. They sold bonds and bills and this is said to have been the first of the tests in regards to market outlook and sentiment. There was some questions which had been previously asked of the Italian government why they hadn’t made previous attempts to reduce the debt but with this latest accomplishment some amount of hope has been restored.

Unfortunately, hope is still lacking for the rest of the Eurozone because those countries have taken money meant to stimulate economies and are hoarding it instead. Depending on Italy’s success, those other countries may see that it is possible to reduce short term borrowing and begin to lend again as the money was supposed to allow for. This information may be forthcoming by as early as the first weeks in the new year.

While it is true that government’s borrowing costs were at record lows last month, this is felt to be the result of investors seeking safe havens in fear of a second recession looming ahead. The chairman of the OBR (Office for Budget Responsibility) states that even the reduced forecast for next year’s growth is overly optimistic when being lowered from 2.5% to 0.7%.

This forecast was based on the expectations that the eurozone would rise out of their current struggles but this is not happening and is not expected to reach a resolution any time in the near future. If the EU is not able to get on solid footing within the near future, the UK stands to take a hit from the backlash. Greater uncertainty will result in the near future as consumers here and abroad lose further confidence.

Since 75% of the UK’s national production is attributed to the services sector and this sector has seen a significant drop, worries for a double dip recession are becoming increasingly predominant. Another sign of lower consumer confidence is in the fact that consumers are paying off debts at greater rates than they are borrowing. Even though this is the run-up to the holidays, consumers only spent £6/8 billion on credit but paid of an amount greater than £7 billion. As well, new mortgage approvals are down for the month as consumers are still struggling financially.

If Standard’s & Poor’s should in fact downgrade France from its current AAA rating, this would be one more country in the area that would have trouble in the financial markets in raising funds. After a hastily thrown together deal whilst in Brussels, there is some doubt as to whether or not the euro can survive. With few in Greece having the ability to stay solvent, more and more experts finally believe that this country should leave the single currency of its own accord.

However, the potential now for France to lose its current rating is adding fuel to the fire of uncertainty and many are finally coming to the realisation that the single currency might be on its last legs. George Osborne and David Cameron are making it a priority to do what they can to see to the longevity of the euro because ‘disorderly breakup’ would have devastating consequences for the UK; not only one the UK for that matter, but throughout all of Europe as well.

Some feel that France was looking to distract the world by pointing fingers at the UK whilst they were trying to hide the fact, or at least deflect attention, that their country was in dire financial straits. At the moment there is a cessation to the bickering between the two countries as they attempt to allay further fears. However, with the latest news that S&P will most likely downgrade France in the coming days, the panic is sure to begin again.