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GBPUSD Softer On Pessimistic Bank Of England Inflation Report

James Boston
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GBPUSD Softer On Pessimistic Bank Of England Inflation Report

The Bank of England (BoE) has just published a rather measured guidance on the UK’s economy in the form of it’s latest Inflation Report. Marginal cuts to the economy’s growth forecast have been accompanied by a concern that price growth could slow substantially in the near term. This up to date report from the UK’s monetary policy makers openly admits that “the central path is a little weaker than in August”.

Britain’s GDP growth forecasts have been cut by the Bank for the next two years. 2015 expansion is now being projected as 2.9%, down from the previous prediction of 3.1%, while 2016 growth is now forecast as 2.6% compared to the 2.8% being projected by the BoE just one month previously.

A little more surprising was the strength of the Bank’s statement on price growth activity. The inflation rate, which was last measured at 1.20%, has been forecast to fall below the 1% in the coming months. This statement was followed up by a note suggesting that the inflation rate would not return to the target level of 2% for at least three years. This latter statement opens up some space for the Bank’s Monetary Policy Committee (MPC) to hold interest rates at their long term low of 0.50% for some time to come. Until recently most commentators had been predicting rate hikes as soon as early Q2 next year, this was reinforced by 2 of the MPC’s 9 members opting for tightening at the last two committee meetings.

A weakening in the global economy, particularly so in the UK’s closest trading partners in the Eurozone have been cited as the main contributing factors to more pessimistic stance that the Bank has adopted in it’s latest report. The Bank has revised it’s forecast for next years Eurozone growth sharply downward from 1.75% to just 1.25%.

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