James Smith, Developed Markets Economist at ING, explains that the fact that the Bank of England’s forecasts are largely unchanged from August despite the rise in Brexit uncertainty, trade tensions and modest Eurozone slowdown and it still expects a slight acceleration in UK growth over the next year relative to it’s August predictions.
Key Quotes
“It’s also worth noting that these projections don’t include the expansionary fiscal actions from this week’s budget, so growth would otherwise be forecasted to be even better.”
“Meanwhile wage growth – something that has been central to the Bank’s rate hike rationale – is expected to continue rising well above the current 3% level over the next couple of years, as skill shortages intensify.”
“Importantly, this means that the Bank now believes demand and supply to be “broadly in balance”, implying that by the end of its forecast horizon, the economy will be running hot. Put bluntly, policymakers think that rates should be rising more quickly than markets currently expect, and in an ideal world, we suspect they would want to be tightening policy again quite soon.”
“But in reality, the big rise in Brexit uncertainty since the August meeting means that the Bank is likely to sit on the sidelines for the next few months.”
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