Bank of England joins IMF with a pessimistic growth forecast for UK economy, leaves interest rates unchanged
— Press Association (@PA) 3 augustus 2017
Yesterday we reported that the National Institute for Economic and Social Research’ (Niesr) expected the UK to grow by 1.7 percent this year, but expected a rise to 1.9 percent in 2018. This ran contrary to the IMF’s predictions which expected a fall to 1.5 percent in 2018. Today, the Bank of England also chipped in their predictions. In a press conference, they said the UK economy will remain ‘sluggish’, and they cut the growth forecasts to 1.7% in 2017 while predicting a drop to 1.6% in 2018.
As noted in the minutes of the Bank of England presentation:
“Growth had been sluggish and was expected to remain so in the near term. With some business survey expectations balances having weakened, there remained the possibility of a further softening in activity. Weak data on car registrations and the housing market, together with the fall in consumer confidence, could signal weaker consumption than in the central projection. At the same time, increased domestic uncertainty was likely to act as a drag on investment, and there was a risk that this effect would be larger than had been assumed in the forecast.”
This is a different view than NIESR’s, who stated that “Consumer spending is no longer the engine of growth for the UK (…) what is picking up is the contribution of exports, which is in large part because of our more optimistic view on the global economy including the Eurozone, and also because of investment,” as said by Amit Kara, Head of UK macroeconomics research at Niesr.
As a result, six of the Bank of England’s policy makers felt that the UK economy was too “sluggish” to handle higher interest rates, which is a logical consequence. Earlier this week economist Christian Schulz at Citi already explained that “even a small rate hike could have repercussions for the economy in its current fragile state.”