Bank of England cuts growth forecasts as Brexit weighs

Share

Bank of England cuts growth forecasts as Brexit weighs

Cuts growth forecast for 2017 from 1.9% to 1.7%.

But markets focused on the Bank's downward revision of its 2017 growth forecasts, to 1.7 percent from 1.9 percent in May, as well as its unexpected lowering of its inflation projections, which it now saw at just under 2.6 percent in a year's time after peaking at around 3 percent in October.

The Pound Euro (GBP EUR) exchange rate plummeted to a new nine-month low this afternoon following the Bank of England's (BoE) latest monetary policy decision.

The Bank of England's Monetary Policy Committee has voted 6-2 in favour of keeping interest rates at the record low level of 0.25% in one of the key announcements on "Super Thursday".

Mr Broadbent said there should not be undue concern following a rate raise.

The assumption of a smooth Brexit will be tested.

Today the Bank voted to keep rates at 0.25 per cent, by a margin of six votes to two.

The deputy governor told the BBC that exporters had experienced a rise in profits thanks to the fall in the pound since last year's vote to leave the EU.

Economists expect the Bank to downgrade its growth forecasts when it releases its quarterly inflation report following a slump in consumer confidence and a string of weak economic data, further diminishing the chances of a hike.

'Monetary policy can not prevent either the necessary real adjustment as the United Kingdom moves towards its new worldwide trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years.

This comes at a time when United Kingdom households are already seeing their purchasing power diminish as a result of the weakening sterling following last year's vote to exit the European Union blog of nations.

Governor of the Bank of England Mark Carney said uncertainty regarding Brexit was a factor: "It is evident that uncertainties about the eventual relationship are weighing on the decisions of some business". Investment has been weaker than we otherwise would have expected in a very strong world, high degrees of profitability, ample availability and low cost of capital and limited spare capacity.

Carney said: "If the United Kingdom financial system thrives in a post-Brexit world, which is the plan, it will not be 10 times GDP, it will be 15 to 20 times GDP in another quarter of century because we will keep our market share of cross-border capital flows". Bond yields declined from July highs but remained elevated, as some market participants believe that the BoE may surprise, with a 25-basis point rate hike.

"The BOE's attempts to prepare markets for future hikes have fallen on deaf ears for now which could mean volatility in these instruments remains for the foreseeable future as we try to make sense of both the economic and monetary policy environment", he said.

United Kingdom inflation is forecast to rise further in the coming months, peaking around 3% in October before gradually dropping to 2.2% over the three-year forecast.

Share

Advertisement

© 2015 Leader Call. All Rights reserved.