La Bank of England (BoE) leaves rates unchanged and raises growth estimates for 2017, while reducing those for 2018.
In the November inflation report the Bank of England revised its growth projections upwards British GDP to +1,4% from the 0,8% indicated in August, while it lowered the estimates for 1,5 to +1,8% from +2018%. For 2016 the forecasts point to 2% from the previous 2,2 % and for 2019 at 1,6%.
'Sinflation the forecast of the BoE is 2,7% in the fourth quarter 2017 from the previous 2%, as well as for the fourth quarter 2018 (from 2,4%). The unemployment rate LFS (i.e. based on a survey of the workforce) is estimated to increase to 5,1% (from 4,9% of the initial estimate) at the end of 2016, followed by 5,4% in the fourth quarter of 2017 (less then the 5,5% initial) and to 5,6% in 2018 (from 5,5%) and in 2019.
The decline in the pound – according to the report – favors exports, but increasing import prices weighs on the real incomes of families and on spending more than expected in August. Furthermore, a prolonged period of uncertainty is holding back business investment. However that slowdown is less pronounced than the August projections and therefore short-term GDP is higher, reflecting better-than-expected data. The 20% depreciation of the pound last year will lead to inflation rising above the 2% target by mid-2017, to a maximum of 2,7% a year later, before starting to decline. The BoE therefore expects theinflation is above the target over the 3-year time horizon, but then as the impact of import prices fades it should come back close to target next year.
The BoE, as they said, has folded interest rates and asset purchase plan unchanged (Quantitative Easing), after the Fed's stalemate. Last August, the BoE cut interest rates, also showing itself to be more interventionist than expected with an extension of the Quantitative Easing plan.
The rate on the main refinancing operations therefore remains at 0,25% and remains confirmed QE plan at 435 billion of pounds.
With the decision to keep its monetary policy unchanged, the BoE dropped the signal sent so far on the possibility of further cutting interest rates. In fact, the BoE affirmed that rates could change 'in both directions', while it noted that the Brexit decision has not had such a strong impact on the national economy as up to now. Rates were left at 0,25%, a record low, with a unanimous vote from the Monetary Policy Council which met this morning. In August, the Boe decided on a massive stimulus package to protect the British economy as much as possible from the 'Brexit' shock, also reducing interest rates by 0,25 basis points.
