06 January 2020

Financial Times: Bank of England sticks to forecast of post-election rebound in growth

The Bank of England is counting on a post-election boost to the UK economy, with policymakers leaving interest rates on hold despite mounting evidence that growth ground to a halt in the final months of the year.

The central bank said it expected gross domestic product to rise “only marginally” in the fourth quarter of 2019 but added that this was still consistent with its November forecasts, which predicted that growth will pick up in the spring, assuming “combined support from lower uncertainty, easier fiscal policy and somewhat stronger global growth”.

Minutes of the Monetary Policy Committee’s latest meeting said that despite a breakthrough in US-China trade talks and developments on Brexit in the UK, it was “too early to judge how material that would prove to be for the economic outlook”.

A majority of the nine-member committee voted to leave interest rates unchanged at 0.75 per cent, with two external members — Michael Saunders and Jonathan Haskel — voting for a quarter-point cut, which they also argued for at the MPC’s last meeting in November.

The BoE maintained its message that interest rates could move in either direction when it became clearer how companies and consumers were responding to the latest developments — suggesting that it will fall to governor Mark Carney’s successor to set a clearer course for policy.

If global growth failed to stabilise or if Brexit uncertainties remained entrenched, further monetary support might be needed, the BoE said. However, if the economy recovered in line with the BoE’s central forecasts, gradual rate rises might eventually be needed to check inflation.

Yet a quarterly assessment of the economy by the cental bank’s agents, published alongside the MPC minutes, reinforced recent evidence that the UK economy was stalling in the run-up to last week’s election. [...]

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