Tuesday, 24 October, 2017

Bank of England downgrades GDP growth forecasts as Brexit looms

Bank of England staff begin first strike in 50 years Bank of England holds rates for another month
Juana Turner | 04 August, 2017, 00:27

That led policy makers to leave the key interest rate at an all-time low of 0.25%, where it has stood since August past year in the aftermath of the Brexit vote.

All sectors want a transitional arrangement, says Carney, stating it's not limited to finance or manufacturing or any other area of the economy.

A former member of the Monetary Policy Committee, Adam Posen, has predicted that the Bank of England will not change interest rates today.

The Bank also downgraded its growth forecasts for the United Kingdom, from 1.9% to 1.7% for this year, and said growth would then slow to 1.6% in 2018, down from its previous 1.7% projection.

The Bank held the base rate by five to three in June but since then Kristin Forbes, who voted for a rate rise, has left and been replaced by Silvana Tenreyro. "The chances of a 2017 rate hike now look dead and buried", he added.

The Bank also kept its asset purchase programmes unchanged and said a bank lending scheme would end as previously scheduled in February 2018.

Financial market prices now imply a rise in Bank Rate in 2018 Q3, compared with 2019 Q4 at the time of the May Report.

"Sterling plunged by over a cent against the Dollar and was trading at 90 pence against the Euro after the Bank of England delivered a mixed set of signals to the market", notes Neil Wilson, an analyst with ETX Capital.

That flurry of debate reflected the unusually divided vote at the last MPC meeting in June, when its eight members voted by only 5-3 to keep rates at their current level. "The BoE should be encouraged, as well, by noises from the United Kingdom government which supports its assumption for a transitional Brexit agreement".

'GDP growth had been sluggish and was expected to remain so in the near term. "The most striking thing is that they have downgraded the outlook for wages despite lower-than-expected unemployment, and the inflation profile is a bit lower, despite a weaker pound".

Speaking at an event organised by Fathom Consulting, Sir John highlighted that the Bank has already reversed measures implemented in the wake of the Brexit vote that were created to free up lending to the economy.

Pound/dollar immediately fell upon the decision announcement and extended its losses as Governor Carney was talking, falling to as low 1.3111. Standing out was the considerable reduction in wage growth forecasts to 3.0% annually for 2018 from 3.5% just two months ago.

But a raft of weaker data - as well as deep uncertainty about the impact of Brexit - called that view into question. It expects inflation, now at 2.6 per cent, to peak at 2.7 per cent in the final quarter of this year and to gradually fall to 2.2 per cent over the next three years, slightly above the Bank's official 2 per cent target.

The latest Inflation Report from the Bank of England made for some glum reading for sterling bulls, although the weakening in the pound helped to propel the FTSE 100 to its highest level since 26 July.

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