Bank of England upgrades economic forecast
The Bank of England now believes the UK economy will perform better for the rest of 2016 than it feared it would in the aftermath of the Brexit vote.
Its Monetary Policy Committee (MPC) expects “less of a slowing in UK GDP growth in the second half of 2016” than a month ago.
Economic indicators, such as inflation and PMI data, “have been somewhat stronger than expected”, the Bank said.
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The MPC voted unanimously to maintain interest rates at its historic low of 0.25% and to continue with its stimulus packages.
However the MPC said it had not changed its view on “the contours of the economic outlook” following the referendum, and provided guidance that a further cut in interest rates would be supported by a majority of MPC members unless the economic data continues to be significantly more resilient than the Bank’s August forecasts.
A month ago the Bank had said it thought the UK economy was likely to see little growth in the second half of 2016. It launched a £170bn stimulus package which included £60bn of additional quantitative easing and a £10bn corporate bonds purchase scheme.
“The package of measures announced by the Committee at its August meeting led to a greater than anticipated boost to UK asset prices,” the MPC said.
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“Overall, while the evidence on the initial impact of the policy package is encouraging, the Committee will monitor closely changes in asset prices and in interest rates facing households and firms and their effect on economic activity.”
However it warned that it was too early to “draw a strong inference” about its projections for 2017 and beyond.
It still believes inflation will rise to around the Bank’s 2% target in the first half of 2017, although it expects the increases to be lower than forecast over the final quarter of this year.
