The Bank of England has sharply revised its economic forecast upwards, as higher spending and investment continues to help the UK perform better than expected.
The Bank of England now expects the economy to grow by 2 percent in 2017, up from November’s forecast of 1.4 percent. This itself represented a 0.8 percent increase on its forecast made in August.
The Bank has maintained a consistently gloomy outlook on the economy since the UK’s vote to leave the European Union, despite evidence that the UK economy remains strong. The Bank attributed their revised forecast to the higher spending and investment contained in Chancellor Philip Hammond’s Autumn Statement.
As expected, the Bank maintained interest rates at their record low of 0.25 percent.
“Domestic demand has been stronger than expected in the past few months, and there have been relatively few signs of the slowdown in consumer spending that the committee had anticipated following the referendum,” the Bank said in its latest quarterly inflation report.
Despite the increase in outlook for 2017, the Bank still sees the economy slowing in 2018, with a growth rate of just 1.6 percent.
Tom Stevenson, investment director for personal investing at Fidelity International, commented: “The Bank of England’s Monetary Policy Committee remains firmly in easing mode.”
“Once again it has unanimously chosen to keep interest rates at 0.25 percent despite the Bank of England upgrading its forecasts for growth to 2 percent for 2017.
“It believes continued stimulus is necessary because it forecasts growth to slow down to 1.6 percent in 2018 and 1.7 percent in 2019 as Britain negotiates its exit from the European Union.”
The Bank of England was also surprised by an increase in wage growth, which saw an increase over the last quarter.
“Pay growth, although edging up, has remained persistently subdued by historical standards – strikingly so in light of the decline in the rate of unemployment to below 5%,” the Bank said in its report.