Xinhua, London :
The Bank of England (BoE) Thursday forecast strong economic growth in Britain on the back of falling oil prices, adding British inflation could turn negative.
Robust Growth: In its Inflation Report, the bank forecast Britain economic growth would remain at 2.9 percent this year while the 2016 forecast has been revised up to 2.9 percent.
The bank said the robust pace of growth over 2014 is projected to be sustained in the near term.
BoE Governor Mark Carney said in his opening remarks that output growth remained solid and domestic demand growth robust in Britain.
“The combination of rising wages and falling energy and food prices will help household finances and boost the growth of real take-home pay this year to its fastest rate in a decade. This will support solid growth in consumer spending,” said Carney.
“The bank expects any slack in the economy (which it estimates to be just 0.5 percent) to be used up by the middle of the forecast period,” said Vicky Redwood, chief Britain economist at Capital Economics.
Lower Inflation: The bank also forecast that the British inflation would likely fall further, potentially turn negative in the spring, and be close to zero for the remainder of the year.
Last month, data from the Office of National Statistics (ONS) showed the British inflation rate fell to 0.5 percent in the year to December 2014, almost marking a 15-year low. The main contributions to the fall came from low oil prices.
Meanwhile, the bank predicted the inflation would reach the Bank’s 2 percent target in two years.
“This makes it appropriate to return inflation to the target as quickly as possible after the effects of energy and food price movements have abated,” said Carney.
Martin Beck, senior economic adviser to the EY ITEM Club, said in a note: “Arguably one of the most notable changes to the Bank’s forecast is the upward revision to the inflation profile towards the end of the forecast horizon.”
“In November, the bank had expected inflation to finally get back to 2 percent in the final quarter of the forecast, but the new forecast shows inflation a little above the target by the end of the forecast period,” added Beck.
Monetary Policy: Considering potential threatening to recovery, the bank said it was ready to cut rates.
The report said the bank stood ready to take whatever action is needed, as events unfold, to ensure inflation remains likely to return to target in a timely fashion.
But it was stressed the BoE expects its next move will be to raise rates, not cut them.
“We still think that there is a reasonable chance of a hike before the end of this year and scope for market expectations to adjust further,” said Redwood. “This reinforces our conviction that interest rate rises, while likely to be very gradual, will probably increase at a faster pace than the market expects. We expect the first hike to come in early 2016 and for rates to reach 1 percent by end-2016 and 1.5 percent by end-2017,” said Beck.
The Bank of England (BoE) Thursday forecast strong economic growth in Britain on the back of falling oil prices, adding British inflation could turn negative.
Robust Growth: In its Inflation Report, the bank forecast Britain economic growth would remain at 2.9 percent this year while the 2016 forecast has been revised up to 2.9 percent.
The bank said the robust pace of growth over 2014 is projected to be sustained in the near term.
BoE Governor Mark Carney said in his opening remarks that output growth remained solid and domestic demand growth robust in Britain.
“The combination of rising wages and falling energy and food prices will help household finances and boost the growth of real take-home pay this year to its fastest rate in a decade. This will support solid growth in consumer spending,” said Carney.
“The bank expects any slack in the economy (which it estimates to be just 0.5 percent) to be used up by the middle of the forecast period,” said Vicky Redwood, chief Britain economist at Capital Economics.
Lower Inflation: The bank also forecast that the British inflation would likely fall further, potentially turn negative in the spring, and be close to zero for the remainder of the year.
Last month, data from the Office of National Statistics (ONS) showed the British inflation rate fell to 0.5 percent in the year to December 2014, almost marking a 15-year low. The main contributions to the fall came from low oil prices.
Meanwhile, the bank predicted the inflation would reach the Bank’s 2 percent target in two years.
“This makes it appropriate to return inflation to the target as quickly as possible after the effects of energy and food price movements have abated,” said Carney.
Martin Beck, senior economic adviser to the EY ITEM Club, said in a note: “Arguably one of the most notable changes to the Bank’s forecast is the upward revision to the inflation profile towards the end of the forecast horizon.”
“In November, the bank had expected inflation to finally get back to 2 percent in the final quarter of the forecast, but the new forecast shows inflation a little above the target by the end of the forecast period,” added Beck.
Monetary Policy: Considering potential threatening to recovery, the bank said it was ready to cut rates.
The report said the bank stood ready to take whatever action is needed, as events unfold, to ensure inflation remains likely to return to target in a timely fashion.
But it was stressed the BoE expects its next move will be to raise rates, not cut them.
“We still think that there is a reasonable chance of a hike before the end of this year and scope for market expectations to adjust further,” said Redwood. “This reinforces our conviction that interest rate rises, while likely to be very gradual, will probably increase at a faster pace than the market expects. We expect the first hike to come in early 2016 and for rates to reach 1 percent by end-2016 and 1.5 percent by end-2017,” said Beck.
