Bank of England downgrades United Kingdom growth forecast

BRITAIN-ECONOMY-BOE-STRIKE

The Bank of England today cut its forecasts for economic growth, with Carney warning activity could slow further if trade becomes more hard.

The comments followed the Bank of England's decision to hold rates at 0.25 per cent as it downgrades its forecast for United Kingdom growth in 2017 to 1.7 per cent, from its previous estimate of 1.9 per cent.

The day before, Monetary Policy Committee members voted by a margin of six to two to keep Bank Rate at 0.25%.

The Bank of England (BOE) threw cold water on the red-hot Sterling on Thursday. It also fell around a cent against the dollar, plumbing a three-day low of $1.3140, having earlier reached an 11-month high of $1.3267 against the USA currency.

GBP/USD remains on the lower ground, around 1.3150.

Lombard Odier Investment Managers investment strategist Charles St-Arnaud said the BoE's ability to raise interest rates by the end of the year would continue to be hampered by the Brexit negotiations. ING doesn't expect tightening to start until 2018. This contrasts with some of the more hawkish speeches and conferences given by a number of committee members since the last report in May - and as such, the pound has been marked down against both the euro and the United States dollar.

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At the last meeting, three rate-setters voted for a hike, but one, Kristin Forbes, has since departed, and has been replaced by the more dovish Silvana Tenreyro.

Tom Stevenson, investment director for Personal Investing at Fidelity International, commented: "It seems the bank is reluctant to rock the economic recovery by hiking rates just yet and the Bank's view on growth has also been downgraded since the May meeting".

CPI inflation rose to 2.6% in June from 2.3% in March, as expected.

"The perception of a hawkish bent to the MPC's thinking since June's meeting was brought to a halt by the Committee's latest deliberations", said Martin Beck, lead United Kingdom economist at Oxford Economics, in a note. In this situation, we'd recommend borrowers review their mortgage to check if they're on the right deal, should switch to a more competitive fixed rate deal, or even begin making overpayments to bring down their overall debt burden.

United Kingdom interest rates may have to go up by more than the market expects in the future, Bank of England deputy governor Ben Broadbent has told the BBC. The MPC had voted 5-3 to freeze borrowing costs at its previous gathering in June.

That means BOE communication will become increasingly important to watch from a markets perspective, the analysts said. About 150 workers picketed outside the bank's headquarters in central London. "It acts like a dove", he said in a Guardian post. The bank also said there had been evidence that spending on cars, home wares and electrical goods had been falling.

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