Bank of England expected to cut UK growth outlook
The Bank of England (BoE) is expected to lower its growth and inflation forecasts for the UK on Wednesday, signalling a delayed rate hike.
Wednesday sees the release of the BoE’s quarterly Inflation Report, which sets out the Bank’s estimates for GDP growth and inflation.
August’s edition predicted growth of 3.5 per cent in 2014, three per cent in 2015 and 2.6 per cent in 2016.
Growth expectations have been hit recently by weak results from both private survey data and official statistics. The purchasing managers’ index – a survey of private sector firms – released by Markit last week implied that growth in the UK’s service sector had lost momentum.
The service sector makes up nearly 80 per cent of GDP.
Meanwhile, official estimates from the Office for National Statistics (ONS) showed the recovery had slowed down in the third quarter of the year.
“The MPC [monetary policy committee] is likely to nudge down its forecasts for GDP growth over the next couple of years,” said economist Paul Hollingsworth of Capital Economics.
“This week’s Inflation Report looks set to bolster expectations that the first rise in interest rates will not occur until well into 2015.”
With regard to Inflation, figures from the ONS also showed it had dropped to an annual rate of 1.2 per cent in September, below the two per cent target.
“The Bank of England’s November Inflation Report is likely to show a sharp downward revision to its near-term inflation estimates, due to a lower-than-expected current rate and declines in oil prices,” said Laura Rosner, economist at BNP Paribas.
“As BoE chief economist Andy Haldane has said that he was gloomier on the UK outlook, the tone of the inflation should lean in that direction.” Many economists are now expecting the first rate hike to come after May’s general election.