Better forecasts not enough for Carney in Brexit’s long shadow
london — For Mark Carney, better won’t be good enough.
The Bank of England governor, overseeing an economy recording solid expansion and accelerating inflation, will probably raise near term projections for both this week, according to economists. At the same time, he may highlight potential longer-term threats from Brexit that may damp any speculation about tighter policy.
It’s a delicate balancing act for Carney, who spent much of 2016 fending off accusations he was being far too gloomy about the economy. While inflation will breach the BoE’s two per cent target within months, the Monetary Policy Committee has indicated it’s keeping its emphasis on supporting growth for now, a trade-off that may become more challenging if the economy keeps up its current momentum.
“On the face of it, the inflation forecast and the fairly resilient growth performance argues for a more hawkish message,” said Sam Hill, an economist at RBC Capital Markets. “But given the headwinds that are approaching related to Brexit, it’s likely the MPC will spend
On the face of it, the inflation forecast and the fairly resilient growth performance argues for a more hawkish message Sam Hill, Economist at RBC Capital Markets
some time making clear just how much room they’ve got to look through a period of inflation being above target.”
Economists predict the BoE will keep its key interest rate at a recordlow 0.25 per cent and leave the size of its quantitative-easing program unchanged on February 2. In August, officials announced a £60 billion ($75 billion) expansion of their giltpurchase plan, a round of bond buying that is set to expire in February.
Since their last forecasts in November, the pound has stopped falling and the economy has maintained its 0.6 per cent pace of quarterly expansion. Another bright spot may be a stronger global backdrop. The Federal Reserve and Bank of Japan also announce policy decisions next week.
All but two out of 19 economists in the Bloomberg survey see the MPC raising its growth forecast for this year, while the majority see the panel also raising its inflation projection. However, most see the bank leaving its estimates for next year unchanged.
Three months ago, Carney said the bank’s next rate move could be up or down. UK consumer-price growth rate jumped to 1.6 per cent in December, and some economists see it reaching as much as three per cent this year, well above target. That’s prompted traders to raise bets on an interest-rate increase this year.
Yet concern that Brexit will hurt trade is expected to hit business investment, and faster inflation means consumer spending will probably slow. UK companies from BT Group to Whitbread have warned about the outlook, while US President Donald Trump has raised the specter of trade wars. Economists don’t see the MPC changing tack any time soon, with Bloomberg surveys showing no policy change until at least 2019. — Bloomberg