Interest rates held, but Bank predicts tougher times
The Bank of England yesterday kept interest rates on hold and raised its economic outlook for this year and next, but warned it could see difficulties in the future with lagging growth and a jump in inflation set for 2018.
Minutes for the latest Monetary Policy Committee (MPC) meeting showed that members voted unanimously to keep rates at 0.25%, having been slashed from 0.5% to a fresh record low in August as part of a post-EU referendum stimulus package worth £170bn.
In its latest quarterly inflation report, the Bank raised its forecast for gross domestic product growth over the next two years, revised up from 2.0% to 2.2% for 2016 and from 0.8% to 1.4% in 2017.
It follows better-than-expected growth of 0.5% in the third quarter, with the Bank also now pencilling in fairly steady expansion of 0.4% in the final three months of 2016.
But the Bank slashed its forecast for growth in 2018 to 1.5% from 1.8% and gave a gloomy outlook for households, with higher unemployment and soaring inflation set to affect their spending power.
The consequent rise in inflation could lead to a "reasonably significant" slowdown in household spending, as the hike in the cost of living outstrips wage growth.
Unemployment is also expected to rise to 5.5% from mid-2018 and stay around that level throughout 2019.
That will mark the year Bank governor Mark Carney has said he will step down.
Mr Carney, who made the announcement earlier this week, said he was timing his departure to coincide with Britain's expected exit from the EU, assuming Mrs May sticks to her pledge to trigger Article 50 in spring 2017.
However, the governor has faced criticism from analysts, who say it will come at a trying time for the UK economy.
In the meantime, experts say Mr Carney is acting as a steady, guiding hand for the economy.
The governor faced speculation he was preparing to step down amid complaints he went too far in warning of the dangers of Brexit.