Bank of England hikes UK growth outlook before Brexit

London: The Bank of England on Thursday ramped up its UK economic growth forecasts for the next three years, despite the threat of Brexit storm clouds.

Alongside news that the BoE had kept its key interest rate at a record-low, the British central bank lifted its 2017 economic growth prediction to 2.0 percent from a 1.4-percent forecast just three months ago.

Gross domestic product (GDP) was set also to expand by 1.6 percent in 2018 and 1.7 percent in 2019. That was up from growth estimates of 1.5 percent and 1.6 percent respectively. Also Thursday, the BoE kept the bank´s rate at 0.25 percent and left its quantitative easing (QE) stimulus policy unchanged.

The outlook was brighter because of the British government´s planned increase in public spending as announced in November by finance minister Phillip Hammond, the BoE said. A solid global economy, recent strong gains for world stock markets and cheap borrowing would also boost growth, it added.

The bank´s Monetary Policy Committee said it saw no evidence of a consumer spending slowdown since Britain´s shock referendum vote last year in favour of exiting the European Union.

However, a recent sharp Brexit-fuelled tumble in sterling would hit spending at some point, it warned.

"Domestic demand has been stronger than expected over the past few months," the BoE noted. "Nevertheless, continued moderation in pay growth and higher import prices following sterling´s depreciation are likely to mean materially weaker household real income growth over the coming few years.

"As a consequence, real consumer spending is likely to slow," it added. The BoE meanwhile predicted that UK annual inflation would hit 2.8 percent in the first half of 2018, before falling back to 2.4 percent over the forecast period.

 That was above the BoE´s target level of about 2.0 percent. Following Thursday´s rate decision and economic forecasts, sterling fell against the dollar, which in turn pushed the London stock market higher on gains to heavyweight multi-nationals.

"The Bank of England faces a tough job in the coming months as it seeks to balance a surprisingly resilient economy, higher inflation and the difficult-to-quantify risks posed by Brexit," said Hargreaves Lansdown economist Ben Brettell.

"The economy has remained surprisingly robust in the aftermath of the vote to leave the EU." The economy enjoyed solid growth in the final months of last year, even as the country braces for its EU exit.

The British government is set to trigger Brexit by the end of March, which will spark a two-year process for the nation to leave the European Union. British GDP meanwhile expanded 0.6 percent between last October and December, matching the growth during the previous two quarters.

The economy grew overall by 2.0 percent in 2016, a slowdown from the previous year´s increase of 2.2 percent. British Prime Minister Theresa May´s government on Thursday published its Brexit strategy after winning a first parliamentary vote on a bill that would empower her to start pulling Britain out of the bloc.

Published in The News, February 3rd, 2017