Bank of Eng­land cuts growth fore­casts

Austin American-Statesman - - COMMUNITY NEWS - By Danica Kirka

The Bank of Eng­land kept in­ter­est rates on hold Thurs­day as it cut growth fore­casts for this year and next, say­ing that it ex­pects the econ­omy to re­main “slug­gish” as house­hold in­comes are squeezed by in­fla­tion that fol­lowed the Brexit vote.

The bank’s Mone­tary Pol­icy Com­mit­tee voted 6-2 to keep rates at a record-low 0.25 per­cent amid un­cer­tainty about Bri­tain’s eco­nomic prospects when it leaves the Euro­pean Union in 2019.

The cen­tral bank cut its es­ti­mate for eco­nomic growth this year to 1.7 per­cent from the pre­vi­ous es­ti­mate of 1.9 per­cent, and to 1.6 per­cent in 2018 from 1.7 per­cent.

Bank Gov­er­nor Mark Car­ney said com­pa­nies are rein­ing in spend­ing be­cause the de­tails of Bri­tain’s fu­ture re­la­tion­ship with the EU are still un­clear, even as con­sumers tighten their belts be­cause the pound’s weak­ness has made many im­ported goods more ex­pen­sive.

Ne­go­ti­a­tions be­tween the two sides are in their early stages, with dif­fer­ences over im­mi­gra­tion and fi­nan­cial obli­ga­tions threat­en­ing Bri­tain’s goal of re­tain­ing ac­cess to the Euro­pean sin­gle mar­ket.

Brexit un­cer­tainty “weighs on the de­ci­sions of busi­nesses and house­holds and holds down both de­mand and sup­ply,” Car­ney told re­porters af­ter the bank re­leased its quar­terly re­view of eco­nomic trends.

The pound fell 0.7 per­cent to $1.3132 in early af­ter­noon trad­ing as the prospect of slower eco­nomic growth damped expectations for a rate in­crease in the next few months. The cur­rency had risen to an 11-month high af­ter the MPC’s pre­vi­ous meet­ing, when three pol­i­cy­mak­ers voted to raise rates.

Some econ­o­mists had called for a rate in­crease af­ter in­fla­tion ac­cel­er­ated to 2.9 per­cent in May, well above the bank’s tar­get of 2 per­cent. But the rate dipped to 2.6 per­cent in June, eas­ing pres­sure for a rise.

While rates are on hold for now, the bank warned they may even­tu­ally rise more quickly than mar­kets seem to ex­pect. For ex­am­ple, Howard Archer, chief econ­o­mist of the EY ITEM Club, has pre­dicted rates will rise to 0.50 per­cent by the third quar­ter of 2018.

As with many things in Bri­tain th­ese days, the specter of Brexit over­shad­ows every­thing.

The bank’s out­look for growth, in­fla­tion and con­sumer bor­row­ing are all con­tin­gent on the gov­ern­ment’s abil­ity to ne­go­ti­ate a di­vorce set­tle­ment that min­i­mizes any dis­rup­tion to trade and in­vest­ment.

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