Advertisement

Bank of England upgrades UK growth forecasts. A bit

Bank of England governor Mark Carney predicts growth will be a little stronger. Credit: PA

It is perhaps remarkable that while Westminster echoes to the sound of discord the economy continues to advance to a slow, steady drumbeat.

This morning the Bank of England has decided that growth is and will be a little stronger than it was predicting three months ago.

October 31 is the new deadline for Brexit but this extension was not a material factor in the Bank’s assessment of our economic prospects.

The Bank has quarterly growth of 0.5% - instead of 0.2% - pencilled in for the first three months of this year.

A revision that was driven by companies furiously stockpiling for a potentially disruptive Brexit at the end of March. The boost is temporary - a sugar rush that will wear off.

But the Bank believes our fortunes over the medium term also burn a little brighter. It now predicts annual growth of 2.2% by mid-2022 and expects the rate of unemployment to fall to 3.5% - the lowest it has ever forecast.

We shouldn’t get carried away. The revisions are not a reassessment of our economic strength but simply reflect higher asset prices and the market’s belief that interest rate rises look less likely than they did before.

Indeed, investors are betting that Bank Rate will only reach 1% by the end of next year.

The Bank’s forecasts are also based on a set of assumptions which some may feel are rather bold: that Brexit uncertainties will “subside gradually” and business investment will recover; that there will be a “smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union”.

The Bank of England predicts Brexit worries will 'subside gradually'. Credit: PA

Put another away, anything could happen next but whatever does happen will depend to a large extent on the final Brexit settlement.

For that reason the Bank of England’s Monetary Policy Committee voted unanimously to keep interest rates on hold.

The Bank has said previously that the existence of a transition is more important that the end-state relationship.

Two thirds of businesses now say they are as prepared as they can be for a “no deal, no transition” Brexit but the Bank continues to believe that such an outcome would be extremely negative.

For the moment, politicians can continue wrangle without feeling pressure of an ailing economy.

UK economic growth is modest but it’s stronger currently than in France, Germany, Italy and Japan. Inflation is below target, unemployment is at its lowest level in five decades, wage growth is finally recovering.

Economists generally agree that economic growth has been weaker since the referendum than it would have been had we voted to remain in the EU, but the idea of potential output forgone isn’t one that resonates with the public. Particularly when so many people are in work.

British businesses worry, of course, but British households keep spending. The future could be bleak but the here and now isn’t.