Britain’s central bank has again raised its forecast for economic growth there this year, but does not seem to be in a rush to raise interest rates from their record low as the UK economy adjusts to the prospect of leaving the European Union.
Governor Mark Carney said growth has been resilient since the Brexit vote but despite the higher forecast it won’t be painless: “This stronger projection doesn’t mean the referendum is without consequence. Uncertainty over future arrangements is weighing on business investment which has been flat since the end of 2015. Business investment is expected to be around a quarter lower in three years time than projected prior to the referendum, with material consequences for productivity, for wages and for incomes.”
The Bank of England’s experts see prices continuing to rise because the depressed value of the pound makes imports – like oil – more expensive.
Inflation is seen peaking at around 2.8 percent at the start of next year – way above the bank’s 2.0percent target, but Carney was relaxed about that.
He told reporters: “The Brexit journey is really just beginning. While the direction of travel is clear, there will be twists and turns along the way. Whatever happens, monetary policy will be set to return inflation sustainably to target while supporting the necessary adjustments in the economy.”
Carney was asked how his experts had got it so wrong before last June’s referendum – predicting a severe economic pull-back if Britain voted to leave the EU. He said they had missed the strength of consumer spending and consumer confidence; but with rising inflation and weak income growth it remains to be seen how long that will last.