Bank of England cuts growth forecast and warns on wages

Carney said an 'element of Brexit uncertainty' was affecting wage growth
  • Video report by ITV News Business Editor Joel Hills

The Bank of England has cut its growth forecast to 1.7% in 2017, down from 1.9%, a result of the squeeze on incomes and slowing investment by business.

Amid that gloomy backdrop the Bank's Monetary Policy Committee (MPC) kept interest rates at 0.25%, although the Bank indicated rate hikes will be necessary over the next few years to rein in Brexit-fuelled inflation.

The Bank expects inflation, which was at 2.6% in June, to peak at 3% in October before dropping back in 2018.

It warned the squeeze on incomes experienced by ordinary families across Britain was likely to remain over the short term, before incomes would be able to rise "modestly" and could outpace inflation next year.

Reading from the MPC's report, Bank of England governor Mark Carney said that economic growth was expected to remain "sluggish in the near term as the squeeze on household's real incomes continues to weigh on consumption".

"Growth then picks up to just above its reduced, or modest, potential rate as net trade in business and investment firm up and consumption growth gradually recovers, in line with modestly rising household incomes."

On Brexit, Carney said said the Bank was still prepared for all potential outcomes of the talks - from a comprehensive deal to no deal at all - but warned uncertainty over the UK's future relationship with the EU is holding back business investment and consumer spending.

He hinted Brexit was playing into the low wage growth affecting British workers, saying: "There is an element of Brexit uncertainty which is affecting the wage bargaining.

"Some firms - potentially a material number of firms - are less willing to give bigger pay rises given that it's not as clear what their market access is going to be over the course of the next few years."