Bank of England cuts growth forecast and warns of business Brexit concerns
2 min read
The Bank of England has downgraded its growth forecast for this year and 2018 and warned of business concerns over Brexit.
The Bank said the UK economy would stay “sluggish”, with the forecast for GDP growth falling from 1.9% to 1.7%, with next year's forecast cut from 1.7% to 1.6%.
In its quarterly Inflation Report the Bank also highlighted that household disposable incomes would continue to face a squeeze in real terms this year.
The committee expects inflation to peak at around 3% peak in October before dropping to 2.2% by 2020, as the depreciation of the pound continues to hit consumers.
Inflation had jumped as high as 2.9% in April and May, but moderated in June, to 2.6%.
Meanwhile pay packets are expected to be hit further, with wage growth expected to reach just 2% this year.
The report came as the bank's Monetary Policy Committee voted 6-2 to maintain interest rates at a record low 0.25%.
The Bank’s governor, Mark Carney, said it was “evident” that the slowdown in growth and business investment was a symptom of firms' Brexit concerns.
"It’s evident in our discussions across the country with businesses, it’s evident in our decision maker panel survey, it’s evident in other surveys, it’s evident in the reporting of a number of people in this room, that uncertainties about the eventual relationship are weighing on the decisions on some businesses…,” he said in a press conference at the Bank’s headquarters.
Mr Carney said while the bank did see business investment picking up throughout the growth period, overall the “speed limit of the economy has slowed”.
He added however that the Bank had no “material evidence” to suggest a transition period between leaving the EU and establishing separate trade arrangements would “be anything but smooth”.
“What we do see is that uncertainty about market access post-Brexit is starting to affect some business decisions and its consequences for investment, but people are not building in the possibility for a more disruptive process in any material way” he added.
The governor warned the uncertainty was also hitting workers' wages.
“We are picking up across the country that there is an element of Brexit uncertainty that is affecting wage bargaining,” he said.
“Some firms, potentially a material number of firms, are less willing to give bigger pay rises given it’s not as clear what their market access will be over the next few years."
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