BoE delays rate hike following weak growth

Bank of England

On Wednesday, the Bank of England (BoE) will release its quarterly inflation report – and is expected to lower its UK growth and inflation forecasts, pushing back an interest rate hike until after the election.

In August, the bank predicted 3.5% growth in 2014, 3% in 2015 and 2.6% in 2016. However, both official sources and privately collected data have shown weak results.

The Office of National Statistics has said that the UK’s economic recovery lost momentum last quarter, while last week’s purchasing managers’ index, published by Markit, showed a similar slowdown in the service sector.

The MPC [monetary policy committee] is likely to nudge down its forecasts for GDP growth over the next couple of years,” Paul Hollingsworth, economist at Capital Economics, told CityAM. “This week’s Inflation Report looks set to bolster expectations that the first rise in interest rates will not occur until well into 2015.”

Inflation figures also look bleak, with the ONS reporting a drop to 1.2% in September, far below the target annual rate of 2%

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.”

 

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