Belfast Telegraph

Bank of England hikes growth forecasts as fears of Brexit vote slump dissipate

The Bank of England has hiked its growth forecast for 2017 and the next two years as the UK continues to shrug off fears of a Brexit vote slowdown.

Minutes of the latest Monetary Policy Committee (MPC) decision showed policymakers voted unanimously to keep rates on hold at 0.25% as the Bank made sweeping upgrades to its growth outlook.

But Bank governor Mark Carney cautioned the MPC's stronger growth projection "doesn't mean the referendum is without consequence" and said business investment would pull back sharply while consumers would be hit by soaring inflation and poor wage growth.

He said: "The Brexit journey is really just beginning.

"While the direction of travel is clear, there will be twists and turns along the way."

In its quarterly inflation report, the Bank upped its growth forecast to 2% this year, 1.6% in 2018 and 1.7% in 2019.

This is up from its November predictions for 1.4% growth in 2017, 1.5% in 2018 and 1.6% in 2019.

It comes after impressive expansion of 0.6% in the final quarter of 2016 as gross domestic product (GDP) has remained surprisingly resilient since the Brexit vote last June.

The Bank, which has now raised its growth outlook twice in the last three months, said around half of the upgrade was thanks to the government spending boost revealed in the Chancellor's Autumn Statement last November.

It added that a solid global economy, surging stock markets and cheap borrowing were also helping support growth.

Minutes of the MPC meeting showed some policymakers believe it is becoming harder to justify keeping rates at record lows, with growth showing surprising resilience and inflation rising.

It is forecasting inflation to lift to 2% this month, peaking at 2.8% in the first half of next year, before falling back to 2.4% in three years' time.

Some of the nine MPC members believe they are edging closer to the Bank's limit in "looking through" above-target inflation, according to the minutes.

Financial markets are now factoring in two rates rises over the next three years, with one hike now expected by the end of 2018.

But the pound fell - down 0.8% at 1.26 US dollars and 1.2% at 1.16 euros - as Mr Carney played down chances of an earlier rate rise and said policymakers would continue balancing the trade-off between above-target inflation and supporting growth in "exceptional circumstances".

He cautioned the consumer spending spree boosting the economy will start to fizzle out over the course of 2017, with h ouseholds facing sharply lower spending power as real incomes - which take inflation into account - stall over this year and next.

The latest forecasts come after the Bank's chief economist Andy Haldane admitted last month the Bank had suffered a "Michael Fish moment" in making overly gloomy predictions last year over the impact of a Brexit vote.

Mr Carney controversially warned last year a Brexit vote could trigger a UK recession.

The Bank halved rates to 0.25% and unleashed a mammoth economy-boosting package in August to see off the threat of an expected sharp slowdown.

Neil Wilson, a senior market analyst at ETX Capital, said the latest growth upgrade was "a touch of humble pie for the Bank, as it's been made abundantly clear that the economic Armageddon it expected in the event of Brexit has just not materialised".

Weekly Business Digest Newsletter

This week's business news headlines, directly to your inbox every Tuesday.