BoE Upgrades Growth Forecast for British Economy

In its Quarterly Inflation Report, the Bank of England raised its United Kingdom growth forecast for this year, in part because the outlook for the global economy is a bit brighter. The economy has been hobbled by the uncertainty around Brexit, leading to a year of falling investment, and the minutes said the timing and nature of Brexit remained the biggest factor for the outlook.

"There are insufficient hikes in the current market curve to be consistent with our remit", he told reporters, referring to interest rate expectations embedded in financial market prices. The vote among BoE policymakers to hold the interest rate at 0.75 percent was unanimous, but they opined that in the future, higher borrowing costs seem inevitable.

"Even then, "one quarter-point rate rise per year", I wouldn't describe that as particularly dramatic".

"If a Brexit resolution is some form of arrangement with some smooth resolution to it, it will require rate increases, and more frequent rate increases than the market now expects", he added. Since then, Britain has been granted an extension to its departure to October 31 after Parliament rejected Prime Minister Theresa May's Brexit withdrawal deal with the European Union on three occasions.

It also increased its gross domestic product (GDP) growth outlook to 1.6 per cent in 2020 and 2.1 per cent in 2021, up from 1.5 per cent and 1.9 per cent previously.

The UK central bank maintains the main interest rate at 0.75 percent, as was generally expected on the financial markets.

Experts and commentators had expected that the central bank would respond with a wait-and-see approach as Britain was still in the period of Brexit uncertainty.

Bottom line is that it's still all about Brexit so no matter what the BOE says here about the economy being better in Q1 or if it upgrades its economic projections slightly, they're still in no position to hike rates any time soon and all of this will just reaffirm their gradual once-a-year rate hike view IF Brexit proceeds smoothly.

But it warned the fillip with fade fast, with growth set to slow sharply to 0.2 per cent in the second quarter and remain "subdued" in the face of Brexit uncertainties. According to the Bank of England, two thirds of firms said they were as prepared as possible for a "no-deal" Brexit, a scenario that they on average think would cut 3.5% from their output.

Mark Carney the Governor of the Bank of England listens to a journalist's question during an Inflation Report Press Conference at the Bank of England in the City of London, Thursday, May 2, 2019.


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