Bank’s growth forecast facing cut as the Brexit effect takes hold

THE Bank of England is this week expected to cut its forecast for economic growth as uncertainty escalates in the wake of the vote for Brexit.

Last week’s official growth figures for the year so far showed the economy is doing worse than expected and is growing at just half of the rate in 2016.

The Bank’s last forecast, published in May, suggested the economy will grow by 1.9 per cent this year and 1.7 per cent in 2018.

However, Howard Archer, chief economic adviser to the respected EY Item Club, said: ‘It does look likely the Bank of England will have to downgrade its GDP growth forecast for 2017 at least.’

The weakening economic outlook – combined with last month’s slightly lower than expected inflation figures – will mean that homebuyers and other borrowers will be unlikely to have to contend with a rise in interest rates within the next year.

The Bank’s Monetary Policy Committee holds its monthly meeting on Thursday and City analysts overwhelmingly expect no change in the cost of borrowing.

Archer said: ‘An easing back in inflation, ongoing muted GDP growth, still-weak earnings growth and major economic political and Brexit uncertainties make a compelling case to keep interest rates at 0.25 per cent at the August MPC meeting.’

He added that he now expects no rise in rates until late next year at the earliest.

Three of the MPC’s nine members voted to raise rates last month, but one of the hawks, Kirstin Forbes, has since left the

committee and it is expected that just two members will vote for a rise this week.

The expected downgrade in the Bank’s economic growth forecast comes amid mixed signals from business group the CBI.

Its survey of members, published today, shows output in the private sector accelerating in the three months to July.

A balance of +16 per cent of its members reported a rise in output, up from +6 per cent in June.