nsucurrent.com March 24, 2018

Bank of England sees first strike in 50 years

04 August 2017, 12:28 | Ruby West

Bank of England sees first strike in 50 years

BoE Keeps Rate, Cuts Growth Forecast

Although most economists taking part in a Reuters poll had forecast a 6-2 vote to keep rates on hold, some had thought that chief economist Andy Haldane could join those calling for an immediate hike.

New economic forecasts released by the Bank at the same time cut the outlook for GDP growth this year and next and painted a weaker picture for earnings growth.

Leading Brexiteer John Longworth trashed the Bank of England gloomy forecast for Brexit Britain's economy.

He said it was now "quite hard to argue that they shouldn't reverse the 0.25 percentage point cut" given the continued drop in unemployment, which now stands at the rate the Bank assumes will start to generate inflationary pressures as a tighter labour market drives up pay.

"I think they are not going to vote for a rate hike at this time and probably not until at least November and maybe not even until 2018", he said. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.

Ian Kernohan, economist at Royal London Asset Management, said the door was open for a future rate hike.

"Sterling plunged by over a cent against the Dollar and was trading at 90 pence against the Euro after the Bank of England delivered a mixed set of signals to the market", notes Neil Wilson, an analyst with ETX Capital. The combination of high rates of profitability, especially in the export sector, the low cost of capital and limited spare capacity supports investment by United Kingdom firms over the forecast period, offsetting the effect of continued uncertainties around Brexit.

UK GDP growth fell back in the first half of 2017 and is expected to remain at 0.3% in Q3 before picking up slightly at the end of the year.

Fabrice Montagne, chief United Kingdom and senior European economist at Barclays, said: "We expect the Bank of England to downgrade its forecast in order to reflect disappointing data". The Committee voted unanimously to close the drawdown period for the Term Funding Scheme (TFS) on 28 February 2018, as envisaged when the scheme was introduced.

The correlation between the FTSE 100 and the pound has returned to negative today, with the FTSE 100 up 1.3% so far and GBP/USD down 1.15%. However, the MPC predicted "significant upward pressure" from import prices in the coming months and for inflation to peak at around 3 percent in October. Its shares surged 9.7 percent after it returned to sales growth in the second quarter, helped by warm weather and an improvement in its online offering. Standing out was the considerable reduction in wage growth forecasts to 3.0% annually for 2018 from 3.5% just two months ago.

Forty per cent of the Bank's decision maker panel, which collects information on business conditions, is impacted by Brexit supply chain issues and other uncertainties, the Governor adds.

There were only marginal changes to the latest inflation forecasts from those produced in the May inflation report.

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