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Bank forecasts better growth for 2017 Bank sees sharp rise in inflation in 2017
(35 minutes later)
The Bank of England has raised its growth and inflation forecasts for 2017 and held interest rates at 0.25%. The Bank of England has made a dramatic rise to its inflation forecast for next year, predicting that the rate will almost triple.
It increased its prediction for economic growth from 0.8% to 1.4% for next year, but cut the 2018 forecast from 1.8% to 1.5%. The Bank now expects inflation to hit 2.7% next year, up from the current rate of 1%.
The revisions indicate that the Bank now thinks the impact of the Brexit vote will be felt later than expected. It also increased its prediction for economic growth from 0.8% to 1.4% for next year, but cut the 2018 forecast from 1.8% to 1.5%.
The higher growth forecast for 2017 prompted the Bank to play down the prospect of a further rate cut. An interest rate cut this year was no longer an option, the Bank indicated.
"In light of the developments of the past three months, all MPC [Monetary Policy Committee] members agreed that that the guidance it had issued following its August meeting regarding the likelihood of a further cut in Bank Rate had expired," the Bank said. "In light of the developments of the past three months, all MPC [Monetary Policy Committee] members agreed that the guidance it had issued following its August meeting regarding the likelihood of a further cut in Bank Rate had expired," the Bank said.
Reaction to Bank's rate decision The sharp rise in inflation expectations was blamed on the slide in the pound since the referendum, which is driving up prices of imported goods.
Ahmed: Brexit economic pain delayed, not cancelled
Paul Hollingsworth of Capital Economics said the stronger economic outlook for 2017 means that another rate cut now looks unlikely: "Indeed, we think that the economy will continue to surprise," he said.
The fall in sterling since the referendum prompted a sharply higher inflation forecast of 2.7% next year from the bank - the most recent official figures showed that inflation is running at 1%.
The Bank does not expect inflation to return to its 2% target until 2020.The Bank does not expect inflation to return to its 2% target until 2020.
Chris Saint at Hargreaves Lansdown said: "Crucially, higher inflation and growth forecasts for 2017 mean the Bank has dropped its easing bias and now acknowledges that interest rates could move either way." UK economic analysis by Kamal Ahmed, BBC Economics Editor
Others see a more dramatic move higher in inflation. This week the National Institute for Economic and Social Research said it expected inflation to quadruple to about 4% in the second half of next year. The think tank also warned that prices would "accelerate rapidly" during 2017 as the fall in sterling is passed on to consumers. Inflation is an approaching risk and the economy is facing difficult times ahead, according to the Bank.
Weaker sterling Yes, it has upgraded its growth forecasts markedly for this year and next.
In a press conference explaining the decision, governor Mark Carney also pointed out that household spending had held up better than expected since the vote to leave the EU. But it has downgraded growth for 2018 as business investment and trading relationship uncertainty start to feed through to economic output.
That downgrade is so substantial that at the end of 2018, the Bank believes the economy will be on aggregate more than 2.5% smaller than expected before the Brexit referendum vote.
That's a bigger relative decrease in output than the Bank predicted earlier this year.
This is economic pain delayed, not cancelled.
More from Kamal
Reaction to Bank's rate decision
Others see an even more dramatic rise in inflation. This week the National Institute for Economic and Social Research said it expected inflation to quadruple to about 4% in the second half of next year.
The think tank also warned that prices would "accelerate rapidly" during 2017 as the fall in sterling is passed on to consumers.
'Air of uncertainty'
The revisions to growth also indicate that the Bank now thinks the impact of the Brexit vote will be felt later than expected.
Laith Khalaf, senior analyst at Hargreaves Lansdown, warned: "What happens on the Bank of England's chalk board doesn't necessarily play out in the economy, and with so much uncertainty in the air, it's prudent not to count too many chickens before they've hatched."
In a press conference explaining the decision, Bank governor Mark Carney also pointed out that household spending had held up better than expected since the vote to leave the EU.
"For households, the signs of an economic slowdown are notable by their absence," he said."For households, the signs of an economic slowdown are notable by their absence," he said.
Sterling was trading 1.25% higher at $1.2457 after the Bank's inflation report was released, while yields on UK government bonds also rose.
The Bank also warned that Britain's access to EU markets could be "materially reduced" following Brexit, which would hit economic growth over a "protracted period".The Bank also warned that Britain's access to EU markets could be "materially reduced" following Brexit, which would hit economic growth over a "protracted period".
Sterling was trading 1.5% higher at $1.2488 after the Bank's inflation report was released, while yields on UK government bonds also rose.