Bank of England downgrades United Kingdom growth forecast

Javier Stokes
August 6, 2017

Some economists had called for a rate increase after inflation accelerated to 2.9 per cent in May, well above the bank's target of two per cent.

The MPC says it expects inflation to rise in the next few months, peaking at around 3% in October.

Lombard Odier Investment Managers investment strategist Charles St-Arnaud said the BoE's ability to raise interest rates by the end of the year would continue to be hampered by the Brexit negotiations.

The Bank of England's August Inflation Report shows 2017 inflation increasing slightly more than expected in the May report, and GDP growth remaining more sluggish than expected as a result.

He said uncertainty about Brexit - in particular lower investment by companies - meant the economy could not grow as fast as before without pushing up inflation.

Fabrice Montagne, chief United Kingdom and senior European economist at Barclays, said: "We expect the Bank of England to downgrade its forecast in order to reflect disappointing data".

THE BANK of England has revised down growth forecasts for the United Kingdom as it held interest rates yet again this month.

The assumption of a smooth Brexit will be tested.

While the bank sees the weaker pound and stronger global growth bolstering exports, uncertainty surrounding the United Kingdom's talks to leave the European Union is creating a drag.

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Some Republican lawmakers have called for overhauling the committee to address other concerns about Chinese deals. He said China had a particular role to play, as it accounted for 90 per cent of trade with the Communist nation.

"It is very unlikely this signaling will culminate in formal policy action, particularly in the early stages of the Brexit process".

On Tuesday, Bank of England employees went on a strike for the first time in more than 50 years over a pay dispute.

Despite the warning, Mr Broadbent played down concerns about the consequences of any future hikes in interest rates.

He said: "It's interesting to consider that for many current mortgage holders, they have never experienced a rate rise and the impact of any payment shock is unknowable at this time". Three months ago, the Bank expected GDP to rise by 1.9 percent in 2017, 1.7 percent in 2018 and 1.8 percent in 2019.

But the Bank appeared to suggest that households and businesses should not expect borrowing costs to stay at their record low for much longer. However, the pair could quickly give up its recovery attempts if the Bank of England (BoE) becomes more dovish in today's upcoming policy decision.

On inflation, the Bank said it sees it overshooting its 2% target through to 2020 and will average about 2.7% in the third quarter, up from 2.6% predicted in May.

The bank's Monetary Policy Committee voted 6-2 in favour of leaving rates and QE unchanged.

It has been a year since the MPS first cut the rate to a historic low of 0.25% amid worries of economic collapse and a drop in corporate confidence in the wake of the Brexit referendum.

The Bank also increased the total amount of cash it is planning to print to support the economy from £545bn to £560bn.

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