Bank of England raises UK growth forecast

BBC.- The Bank of England has raised its UK growth forecast for this year, in part because the outlook for the global economy is a bit brighter. The Bank now sees growth of 1.5% this year, up from February’s forecast of 1.2%.

As expected, the Bank kept interest rates on hold at 0.75%.

It was the Bank’s first interest rate policy meeting since a six-month postponement of Brexit was granted last month. The new deadline is 31 October.

Uncertainty over Brexit has been one reason why the Bank of England has been reluctant to raise interest rates.

What did the Bank say about the economic outlook?
Economic growth has been subdued since the UK voted in June 2016 to leave the EU.

In particular, business investment has been falling.

The Bank says stockpiling has been giving the economy a short-term boost, but for this year, the strengthening of the global economy will have a more important effect.

In minutes from its latest policy meeting, the Bank said “global growth had shown signs of stabilisation, and had been a little better than expected”.

It also forecasts the unemployment rate will continue falling in the coming years to 3.5% by 2022, which would be the lowest rate since 1973.

What is the outlook for the housing market?

The Bank expects a fall in UK house prices this year, with property values predicted to fall by 1.25%.

It says some households are likely to have delayed moving house because of Brexit uncertainty.

It also says that affordability is also slowing the market, particularly in areas where prices are high, such as London and the South East.

What did the Bank say about interest rates?
Interest rates remain at 0.75%, where they have been since the Bank of England last raised them, by a quarter of a percentage point, last August.

At the moment, the Bank is expecting just one rise in interest rates by 2021.

Many economists think that once the uncertainty over Brexit is lifted, the economy is likely to accelerate and the Bank of England will have to raise interest rates to stop it overheating.

At the moment, the Bank sees inflation easing this year to 1.6%, but then picking up and rising above its target of 2% next year.

Will the Bank raise interest rates soon?

The Bank is reluctant to move interest rates until there is further clarity, not least about the path of Brexit.

For as it highlights (again), the movement in rates then could be “in either direction”, depending on the outcome, the impact on the economy and whether it decides to support growth or inflation.

If all goes smoothly, then the Bank is likely to turn its firepower on inflation and proceed with raising rates “at a gradual pace and to a limited extent” – especially if there’s a bounce in investment and hiring.

At the moment, the MPC reckons “the cost of waiting for further information is relatively low”.

But that, given the degree of inflationary pressure it’s forecasting, is quite a gamble.

If the Bank has missed the boat, then rates might have to ultimately rise faster and by more than originally envisaged to curb inflation.

That would be an unenviable parting gift from Mr Carney to his successor.

Read Dharshini’s analysis in full.

How is all this affecting the mortgage market?
Moves in interest rates are important to the 3.5 million people with variable or tracker mortgages.

Even a small quarter-point rise can add hundreds of pounds to their annual mortgage costs.

Mortgage market experts say that for those who can afford to buy a home, it is a good time to borrow.

“Right now, you’ve got lenders that want your business and rates are exceptionally low,” said David Hollingworth, from L&C Mortgages.

Some lenders are offering five-year fixed deals at below 2%, he said.

Even borrowers with a small deposit can find competitive rates of interest, he added.

When will Mark Carney step down?

Last month, the government launched the recruitment process for a new governor for the Bank of England.

Mark Carney will step down on 31 January 2020 after more than six years in the post.

Interviews will be held over the summer and the appointment will be made by the government in the autumn.

The government is under pressure to consider female candidates, as men hold the Bank’s key positions.

At the moment, the Monetary Policy Committee, which sets interest rates, only has one female among its nine members.

Para ver noticia original, haga clic aquí.