undergroundnewsroom.com April 21, 2018

Bank of England: inflation blip is 'entirely' temporary

06 August 2017, 01:36 | Gordon Grant

Office business tools with dollars and calculator on table

Office business tools with dollars and calculator on table

With inflation set to pick up again towards the end of the year, our entrepreneurs need support.

Former British Chambers of Commerce director general and co-chairman of pro-Brexit lobby group Leave Means Leave, John Longworth, said he agreed that business confidence is "lower than it ought to be".

The assumption of a smooth Brexit will be tested.

The downgrades, linked to Brexit, were enough for the majority of the Monetary Policy Committee to vote to keep official borrowing costs at their all-time low of 0.25 per cent, according to minutes from their meeting released on Thursday.

Mr Broadbent said there was a "trade off between stabilising inflation and keeping the economy going".

The bank said that its projections are conditioned on the average of a range of possible outcomes for the UK's eventual trading relationship with the European Union, with the pound falling one cent against the dollar after today's forecast. Perhaps some had seen the BOE raising rates.

Earlier, the BOE made a decision to leave the interest rate unchanged with a vote of 6 against 2, as expected. Additionally, a rise in interest rates could increase the value of sterling, which would make imports lower priced and help to increase the supply of goods/services.

Mr Alan Clarke, a rate strategist with Scotiabank, said: "The door is still open to a hike, but it does not look imminent".

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He said the objective of the MPC was not "the path of interest rates but the stability of inflation in the medium term and subject to that the stability of the economy".

With low unemployment, wages are expected to rise.

In its accompanying Inflation Report, the bank also downgraded its forecast for United Kingdom economic growth for 2017 from 1.9 percent to 1.7 percent, following disappointing GDP growth in the first and second quarters of this year, of 0.2 percent and 0.3 percent respectively.

Bets on interest rate futures suggested investors had pushed back their expectation for the first BoE rate hike by four months to December next year, RBC Capital Markets said.

The MPC now predicts investment in 2020 to be 20 percentage points lower than what it had forecast before the referendum.

The central bank warned that the slump in wage growth is likely to have a negative impact in national consumption over the coming months, with the accompanying uncertainty of Brexit likely to cause GDP to remain subdued.

At the same time, data has shown the economy had its slowest growth since 2012 in the first half of this year, inflation unexpectedly eased back in June and wage growth is weak.

At its simplest level, the policy dilemma facing Britain's central bank is that it must balance surging inflation brought on by the weakened pound since the referendum with the slowdown in the economy, dwindling consumer spending, and declining inward investment.

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