March 17, 2018

Sterling slumps as Bank of England cuts growth forecasts

06 August 2017, 01:35 | Frank Carlson

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Support Mc Donnell joins protesters

Interest rates will remain unchanged with a base rate of 0.25% and the quantitive easing programme stays capped at a total of £435 billion pounds.

Mr Broadbent said the Brexit vote had caused inflation to march higher and there had to be a "trade off between stabilising inflation and keeping the economy going".

'This overshoot reflects entirely the effects of the referendum-related falls in sterling.

We do not expect a rate increase especially as Kirstin Forbes who was one of the three members who voted for a rate increase last time is longer a member of the MPC.

Underlying the squeeze on households from inflation, real wages will fall by 0.5 per cent this year, according to BOE's new forecast. For 2018, it expects growth of 1.6 per cent, down from 1.7 per cent previously.

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.

Overall, the Bank's decision, minutes and language used in its quarterly Inflation Report lacked the hawkish tone that led to rising market expectations for an interest rate hike to be delivered this year. The speed limit, if you will, of the economy has slowed...

As a result, the pound has fallen by 0.4% against the U.S. dollar to $1.31670, having earlier rallied to a new 11-month high of $1.3267 on the back of the possibility of a shock interest rate rise on Thursday. We expect inflation to rise by more than the central bank is now predicting, peaking at 3.4 per cent this year. Recent figures showed the economy had its slowest growth since 2012 in the first half of this year, while inflation has also dipped and growth in wages remains weak.

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"In our view, the Bank of England's forecasts are still slightly optimistic about the near-term outlook for the United Kingdom economy".

Gross earnings dropped 0.4 percent year-over-year in June, reversing 0.6 percent rise in May, which was revised down from a 0.7 percent gain reported earlier.

Mark Carney said mounting uncertainty over the UK's future relationship with the European Union is holding back business investment and consumer spending as the Bank cut its growth forecasts for this year and next. The 2018 forecast was lowered from 1.7% to 1.6%.

Looking ahead, the Bank has made a slight tweak to its GDP (gross domestic product) estimates over a three-year period.

He said: "Uncertainty about market access post-Brexit is starting to affect some business decisions and it has consequences for investment".

Ben Broadbent said the central bank's monetary policy committee (MPC) considers there is a much greater need for this.

Currently, inflation is running at 2.6%, while wage growth is just above 2%, meaning that regular Brits are now bringing in less in wages than prices are growing, effectively lowering their real incomes.

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