Outlook gloomy for UK as Bank reveals low predictions
The Bank of England has cut its forecasts for UK economic growth over the next three years as it published a gloomy outlook for the recovery that also downgraded hopes for rising wages.
It slashed its prediction for gross domestic product (GDP) expansion this year from 2.9% to 2.5% and for 2016 from 2.9% to 2.6%, with the expectation for 2017 also trimmed, from 2.7% to 2.4%.
Policy-makers still think inflation, currently at zero, could turn negative soon before being expected to "pick up notably" towards the end of the year as the effect of oil and food price falls fade, and hitting its 2% target in a couple of years.
In its quarterly Inflation Report, the Bank appeared to endorse market expectations that interest rates would not rise from the current level of 0.5% until the middle of 2016.
Governor Mark Carney said "persistent headwinds" continued to weigh on the UK economy in the wake of the financial crisis, including weak global demand, the squeeze on Government spending and private firms cutting back their debts.
He reiterated the view of the rate-setting Monetary Policy Committee that this would mean a more gradual pace of rate rises than in the past as well as rates remaining "below historical levels for some time to come".
Rates would rise to just 1.4% by the middle of 2018 according to market expectations that the Bank said were in line with it meeting its inflation target.
The report predicted wasteful spare capacity or "slack" in the economy being used up within the next year as the recovery picked up and more jobs were added.
But the Bank cut its forecast for wage growth this year from 3.5% to 2.5%, blaming the fact that rising employment had continued to be skewed towards lower paid posts.