Bank of England Forced To Row Back On Dire Post-Brexit Forecasts

Bank of England
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Britain’s economy is performing better than expected following the vote to leave the European Union (EU), the Bank of England has been forced to admit.

But the Bank’s Monetary Policy Committee (MPC) warned Thursday that it remains on standby to cut interest rates to just above zero later in the year, although the hit to the British economy from Brexit is likely to be less severe than previously predicted.

“A number of indicators of near-term economic activity have been somewhat stronger than expected,” the Bank said in minutes of the Committee’s regular meeting, headed by Governor Mark Carney.

The MPC slashed its forecasts last month, predicting a growth rate of just 0.1 per cent in the third quarter. But in the light of recent sales reports showing more buoyancy than expected, that prediction has already been revised upwards to 0.3 per cent.

“Since the August inflation report [the Bank’s most recent official forecast], a number of indicators of near-term economic activity have been somewhat stronger than expected,” it noted, adding: “The committee now expects less of a slowing in UK GDP growth in the second half of 2016.”

The MPC also voted last month to cut the interest base rate for the first time since 2009 to an unprecedented 0.25 per cent, and undertook the largest British quantitative easing package since the global financial crisis.

Thursday they decided unanimously to keep that policy in place, Reuters has reported.

But given the positive forecasts, economists believe that more quantitative easing this year is now unlikely.

“It is now difficult to argue that the Bank will deliver anything more than a 0.15 percentage point rate cut at its November meeting,” said Dominic Bryant at BNP Paribas.

“Consequently, we have pushed back our call for an additional £50bn of quantitative easing to February 2017, from November 2016 previously.”

Since the June 23rd referendum on EU membership, a number of reports have found the British economy unperturbed by the vote to leave. Retail sales figures released this week showed that sales volumes were up 6.2 per cent on last year’s figures, the Office of National Statistics said.

And although August’s non-food sales slipped by 1.9 per cent on July’s figures, they were up by 3.8 per cent on last year.

Ian Hobday, of financial planning firm The WAY Group, said: “This is yet more evidence that the UK is powering ahead, reflecting recent positive Bank of England post-Brexit sentiment. As an indicator of post-Brexit Britain, these new statistics are encouraging.”

Bank of England Governor Mark Carney was accused of being a “stooge” for the then Chancellor George Osborne in May, when he issued dire warnings on the possible negative economic impact of Brexit which were straight out of the Project Fear playbook.

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