Bank Of England raises UK growth forecast, ForexSQ experts say the Bank Of England raises UK growth forecast up to %2 for the British economy growth 2017.
Bank Of England raises UK growth forecast
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The Bank of England on Thursday sharply increased its forecast for British economic growth in 2017, but appeared to be in no rush to raise interest rates, warning of “twists and turns” on the road out of the European Union.
There was a sign of a partial split as some of the BoE’s nine rate-setters “moved a little closer” to their limits for how much they could tolerate inflation if – and when – it goes above the bank’s 2 percent goal.
But the BoE, in giving its latest quarterly thinking on the economy, sent broader signals that it was comfortable with its record low rates even as the pound’s slide since June’s Brexit vote is pushing up prices quickly.
The currency fell and British government 10-year bond yields were on track for their biggest one-day fall in two months after the bank’s announcement and comments by Governor Mark Carney, suggesting investors were pushing back their bets on when the BoE might raise rates.
The Monetary Policy Committee voted unanimously to keep rates on hold at a record low of 0.25 percent and to leave its other stimulus programs unchanged.
But Carney was in no mood to ditch his concerns about Brexit. Just because the central bank had raised its growth forecasts, he said, did not mean that the vote to leave the European Union would be painless.
“The Brexit journey is really just beginning. While the direction of travel is clear, there will be twists and turns along the way,” he told a news conference.
Significantly, the BoE also said its rate setters now believed the unemployment rate could fall to 4.5 percent – down from its previous estimate of 5 percent and below the current rate of 4.8 percent – before the move starts to push up inflation.
That could help the bank to keep rates low for longer and may be useful to it as it announced the second big increase in three months to its forecast for economic growth in 2017.
Before Thursday’s announcement, financial markets had been pricing in a roughly 50-50 chance of a rate hike by the BoE this year. But most economists said it would probably not happen until mid-2019, when Britain is likely to have left the EU.
“The MPC may decide to start its tightening cycle only after the UK is safely out of the EU, despite a short- to medium-term peak in inflation above the MPC target of 2 percent,” Yael Selfin, an economist with KPMG said.
Carney and his fellow policymakers were wrong-footed by the resilience of Britain’s economy last year following the referendum decision in June to take the country out of the EU.
Britain’s growth in 2016 was stronger than in any other Group of Seven big rich economy, confounding the BoE’s pre-referendum warnings of a quick Brexit hit to the economy.
“The thing that we missed is the strength of consumer spending and consumer confidence associated with that,” Carney said.
STRONG UK GROWTH
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The BoE said it now expected economic growth of 2.0 percent this year, higher than the forecasts of all but one of 50 economists polled by Reuters last month and up a lot from its previous forecast of 1.4 percent.
The new 2017 outlook towered above the forecast of 0.8 percent growth made by the bank in the weeks after the Brexit vote, when the economy seemed to be heading for a recession and the BoE cut interest rates to a record low of 0.25 percent.
Since then, Britain’s consumers have carried on spending and finance minister Philip Hammond has relaxed the country’s austerity drive.
Growth forecasts for 2018 and 2019 were raised by a moderate 0.1 percentage points in each year, and the bank said it still expected rising inflation to cause household living standards to start stagnating at the end of this year.
On inflation, Carney said he expected price growth to hit the bank’s 2 percent target this month but the BoE also said it now expected inflation in two years’ time, a key yard-stick, to be slightly lower than it said in November.
The BoE said it eased the inflation outlook in part because of a mini-recovery in the value of sterling and the recent increase in market bets on higher interest rates.
The outlook for Britain’s economy remains highly uncertain for political reasons too, related to Brexit and the policies of new U.S. President Donald Trump. Carney said the scope for central banks to dominate the global economy was diminishing, with interest rates already so low.
“In many respects, we’re coming to the last seconds of central bankers’ 15 minutes of fame, to use the Warhol line, which is a good thing,” he said.
U.S. artist Andy Warhol once said that in the future everyone would be world-famous for 15 minutes.
