undergroundnewsroom.com April 21, 2018

Bank of England slashes its growth forecast (again)

04 August 2017, 12:37 | Damon Campbell

Carney under fire in first Bank strike for 50 years by Daniel Binns Published

On their marks Unite members and workers in Carney masks picket the Bank’s head office in the City of London

Governor Mark Carney nonetheless sought to keep alive the possibility of one next year.

Brexit is already taking some kind of toll on the economy. So, just a small improvement in growth could bring forward a rate hike.

Matthew Brittain, investment analyst at Sanlam UK, said: "This marginally more dovish sentiment has no doubt been helped by the departure of long-time hawk Kristin Forbes, and puts the BoE firmly back on track to its "slow and steady" normalisation approach".

Jake Trask, FX research director at OFX, added:"Sterling tanked as the BoE chose to hold interest rates".

That sent the pound 0.8% lower against the dollar at $1.312. Shares rose and British government bond prices jumped.

However, the central bank also sought to send a hawkish message that a rate rise could still be coming sooner than markets now expect.

"The loss in real income as a result of the depreciation in sterling may also lead to some people wanting to work longer hours to make up that loss", the bank's inflation report said.

A protester holds up Bank of England Governor Mark Carney mask outside the bank as it staff begins a three day strike over pay, in the City of London, Britain, August 1, 2017. This time, the equivalent forecasts are 1.7 percent, 1.6 percent and 1.8 percent.

Price pressures have risen since the vote to leave the European Union past year knocked the pound sharply lower, thereby increasing the cost of imports to the UK. The projections also assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment to that new trading relationship. The Bank now predicts GDP to rise by 1.7% in 2017, 1.6% in 2018 and 1.8% in 2019, down from 1.9%, 1.7% and 1.8% as outlined in the May Report.

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The vote was 6-2 for no change to the interest rate, which is now at a record low.

At the June meeting, the vote split was 5-3, but the more hawkish tilt was due to a different composition on the Monetary Policy Committee.

The projections in the Report are conditioned on a path for Bank Rate almost a quarter of a percentage point higher than that in the May Report.

But BoE Chief Economist Andy Haldane, who said in June that he was likely to back a rate hike in the second half of this year, stayed with the majority.

"Ongoing concerns around Brexit combined with questions about wage growth (will) hit the pound hard", said David Lamb, head of dealing at FEXCO Corporate Payments.

"Brexit even overshadows consumer borrowing, which the Bank has lately sounded anxious about". It also said a bank lending scheme would end as on schedule in February 2018.

Caxton FX Currency Markets Analyst told the Daily Star Online: "Sterling fell against the euro and the dollar as the MPC voted 6-2 to keep rates on hold".

But while remaining above the Bank's 2% inflation target, it represented an easing from the previous month's 2.9%. 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.

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