Bank of England upgrades economic growth forecasts

Mallotum_X

The Bank of England has upgraded its economic growth forecast and said that inflation should fall faster than had previously been predicted.

In his last inflation report as the Bank's governor, Sir Mervyn King said inflation should drop to its target of 2% within two years.

In February, the Bank forecast that inflation would only fall to 2.3% in the same period.

Inflation has been above the 2% target since December 2009.

The rate of inflation - as measured by the Consumer Prices Index - is currently 2.8%.

Earlier on Wednesday, figures from the Office for National Statistics (ONS) showed that unemployment in the UK had risen to 2.52 million.

The data showed that 15,000 more people were unemployed in the three months to the end of March, with the unemployment rate now at 7.8%.

Risks to the recovery
Presenting the inflation report, Sir Mervyn said: "Today's projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago.

"That's the first time I've been able to say that since before the financial crisis.

"This hasn't been a typical recession and it won't be a typical recovery. Nevertheless, a recovery is in sight."

The stubbornness of inflation to remain above target is one of the reasons why the Bank has not expanded its bond purchasing scheme, or quantitative easing. Doing so would push inflation higher.

But while the Bank said the outlook was slightly more rosy than it was three months ago, the underlining picture remained subdued.

"The economy is likely to see a modest and sustained recovery over the next three years," the Bank said, though it added that the recovery would "remain weak by historical standards".

Weak demand from the eurozone and figures showing that France fell back into recession in the first three months of the year also prompted the Bank to note that the "main risks to the recovery continue to emanate from abroad".

Misplaced optimism?
David Kern, chief economist at the British Chambers of Commerce said Sir Mervyn's analysis may be a little over-optimistic.

"We accept that growth is likely to remain positive, but believe that the speed of the recovery will be somewhat slower than the governor indicated", he said.

"The grim eurozone data also shows that our exporters will face obstacles over the year ahead. We also think that the inflation outlook is slightly worse than the report suggests, and future falls in 2013 and 2014 will not happen as quickly."

The pound rose 0.3% against the dollar to hit $1.5272 after the inflation report was released, although it then fell back.

Despite the more upbeat forecast from the Bank of England, Sir Mervyn said the Bank could not fix the economy on its own.

"Monetary policy alone, however, cannot solve all our problems. There are limits to what can be achieved by general monetary stimulus in any form," he said.

Sir Mervyn is to step down from the post of governor when his replacement Mark Carney takes over in July.

"I've had my say," he said. "Now it's time for the next generation to have theirs."

http://www.bbc.co.uk/news/business-22539965

grizzly1911

I do wonder why:-

a.) they continue to let him speak - should be on gardening leave and

b.) they want to keep talking up the projections endlessly. Just go with a flat projection and surprise everyone if it increases?

michaels

Gotta love the BBC, in a piece titled 'BOE increases growth forecast' they do not bother to include what the forecast is now or what it was before - doh!

DervProf

Mervyn King has made a prediction ?

That shouldn't make the news headlines, a correct prediction from Merv should.

Oh, and inflation above 2% is "just a blip".

Mr._Pricklepants

Well, for the last couple of years we've only been hearing downward revisions of previous GDP forecasts, so an upward revision is certainly a reason to rejoice, no?

dryhat

Mr._Pricklepants wrote: »

...... an upward revision is certainly a reason to rejoice, no?

If it were true and actually meant something, maybe.

shortchanged_2

Personally I don't think we've bottomed out in the economy yet.

The squeeze continues with the only light relief being the reduction in petrol prices (I wonder if this is the fuel for King's upbeat speech?)

Unemployment is back on the rise again (although I was not convinced with the previous few years drops).

The Eurozone remains in a very weak position.

So is this optimism based on growth in the US? Because I don't really see any change in economic circumstances from a couple of years ago to fuel much optimism in the UK economy.

ILW

Have any of Kings projections ever been close to reality?

Graham_Devon

Oh really? A prediction that inflation will fall?

From the BOE? Blimey. Now theres a novelty!

wotsthat

Inflation at 2.8% vs. a target of 2% - quite difficult to get excited about. Certainly not what the frothers expected when QE started.

DervProf

wotsthat wrote: »

Inflation at 2.8% vs. a target of 2% - quite difficult to get excited about. Certainly not what the frothers expected when QE started.

Compound interest ?

Mind you, I wasn't "frothing", I bought shares instead.