BoE ups near-term growth and inflation forecasts

BoE ups near-term growth and inflation forecasts

The Bank of England (BoE) has revised its economic growth and inflation forecasts from its August predictions, predicting the UK economy could do better than expected in the near term but struggle more over a longer time period.

In its November inflation report, the BoE admitted it had not expected UK GDP, production and other data points to be as strong as those witnessed since August, particularly in the advent of the vote to leave the EU.

The central bank slightly raised its GDP growth forecast for 2016 and 2017 as a result, but lowered it for 2018 in the belief that business activity and consumer sentiment will have dropped back - a trend the BoE said it had previously expected to see more of in the short term.

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It now estimates the economy will grow by 2.2 per cent in 2016 and 1.4 per cent in 2017, the latter rising by 0.6 percentage points. However, 2018 has been revised down by 0.3 percentage points to 1.5 per cent.

Both the 2017 and 2018 projections remain well below the 2.3 per cent growth that was predicted for both years in the May inflation report, prior to the decision to leave the EU.

The MPC admitted the economy had been "notably stronger" than it expected in August, but urged caution when using the figures as it said current strength would not last.

"In part that reflects the impact of lower real income growth on household spending. It also reflects uncertainty over future trading arrangements, and the risk that UK-based firms’ access to EU markets could be materially reduced, which could restrain business activity and supply growth over a protracted period," the BoE said.

The central bank also said it expected CPI inflation to easily overshoot its 2 per cent target, now predicting prices will rise by 1.3 per cent this year, and 2.7 per cent in 2017 and 2018.

GDP Growth2.2% (2%)1.4% (0.8%)1.5% (1.8%)
Inflation1.3% (0.8%)2.7% (2%)2.7% (2.3%)

Source: Bank of England, (August predictions)





Meanwhile, the Monetary Policy Committee (MPC), which previously hinted it would "look through" above target inflation in the short term when making decisions, said today (November 3) this was not a hard and fast policy.

"There are limits to the extent to which above-target inflation can be tolerated,” the minutes of the November MPC meeting said.

The MPC voted to keep rates on hold at 0.25 per cent at its monthly meeting. It also scrapped a previous suggestion that a further rate cut was likely by the end of the year.