BoE to slash growth & inflation forecast this week amid weak global outlook

FXStreet (Mumbai) – The Bank of England will likely cut the growth and inflation forecasts this week as well as signal that it intends to keep interest rates at its current record low level of 0.5 per cent for longer period. UK GDP grew 0.5 per cent quarter on quarter in Q4 compared to 0.4 per cent growth seen in the previous quarter. Year on year, GDP grew 1.9 per cent in Q4, slower than 2.1 per cent growth recorded earlier.

Separately, the Confederation of British Industry (CBI) showed that the UK economy expanded at a pace which is noted to be the slowest since May 2013 in the three months to January. CBI’s survey of manufacturers, retailers and the services sector indicated that the economy will show “modest” expansion in Q1 2016.

Policymakers can be expected to slash their 2016 growth forecast to around 2.3 per cent from their November’s projection of 2.5 per cent growth. The weak global outlook has hurt UK’s manufacturers while the manufacturing exports have been hurt by the strong pound. Wage growth has been slow though the labor market has been noted to have strengthened considerably.

Lower oil on the other hand has kept prices in check, negatively impacting inflation. The oil slump is believed to compel policy makers to revise down their near-term inflation forecast. Minutes of the MPC’s January meeting revealed that the central bank believes that inflation measured by the consumer prices index, will increase “slightly more gradually” than its November forecast. Oil prices have also fallen 30 per cent since November. Inflation is thus currently being expected to rise to 0.5 per cent by “the early months of 2016” and continue to stay around that level “for several months”.

The BoE will this week also publish a report providing an assessment of those factors which the Bank thinks is are responsible for an almost flat wage growth in the last few months. The report will also likely throw light on how the bank believes wage growth will move over the coming months . Like Governor Carney and other MPC members have reiterated rate hike will not happen unless wages grow as expected.

Analysts expect the BoE to raise rates from its current level of 0.5 per cent only in the second half of 2017.

The Bank of England will likely cut the growth and inflation forecasts this week as well as signal that it intends to keep interest rates at its current record low level of 0.5 per cent for longer period. UK GDP grew 0.5 per cent quarter on quarter in Q4 compared to 0.4 per cent growth seen in the previous quarter. Year on year, GDP grew 1.9 per cent in Q4, slower than 2.1 per cent growth recorded earlier.

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