Business

Bank of England jerks 2017 GDP forecast higher

Bank of England jerks 2017 GDP forecast higher

Alongside keeping monetary policy unchanged for another month, the Bank of England made a huge upgrade to its forecast for United Kingdom economic growth this year and continues to see above-target inflation for the coming three years.

The Bank's February Inflation Report contains forecast for the United Kingdom economy to grow at 2% in 2017, up from 1.4% forecast back in November and the meagre 0.8% forecast in August.

Britain's economy in 2017 will grow more than originally expected, the Bank of England (BoE) said on Thursday (2 February), allaying fears the impact of the Brexit referendum would hold back economic expansion. "If the strength in the economy continues over the coming quarters, despite the uncertainty created by Brexit, the MPC patience may be further strained".

Inflation is already set to overshoot the Bank's 2 percent target in the coming months.

As expected, the Bank maintained interest rates at their record low of 0.25 percent.

Bank of England governor Mark Carney has said the Bank is prepared to tolerate inflation running above its target, but in the minutes from their latest meeting, members of the Monetary Policy Committee said they had moved "a little closer" to the limit of that toleration.

"Domestic demand has been stronger than expected over the past few months, and there have been relatively few signs of the slowdown in consumer spending that the Committee had anticipated following the referendum", the Bank said.

Former VW chief Winterkorn faces fraud investigation in Germany
At least that is what VW had said just a few days after the scandal broke out and threatened to spill over to the German economy. Winterkorn ran the carmaker for more than eight years and oversaw a doubling in sales and an nearly tripling in profit.

The committee's report says that is expects the economy to slow down during the hard Brexit negotiations that lie ahead in the next two years with the formal triggering on the process now expected in the first week of March.

It added that a solid global economy, surging stock markets and cheap borrowing were also helping support growth.

Despite the much stronger forecast of growth and a continued expectation of above-target inflation, the MPC reiterated its position that monetary policy could be both tightened and loosened.

"The core view at the bank remains that domestically-generated inflation, especially wage growth, will remain too weak to justify raising rates over the next year, a view we share". Expected to be 4.9% this quarter, 5.0% in early 2018 and 5.0% in early 2019.

This comes as a marked shift after last August's move to halve rates to 0.25%, when the Bank also said more cuts were on the cards.

While that would be more than double the forecast the Bank made in August, a few weeks after the referendum, and higher than its November forecast of 1.4 percent, it would still represent a slight slowdown from previous year.


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