New interest rate predictions revised down by Bank of EnglandMake Text Bigger
The Bank of England have released their latest Inflation Report and have revised future predicted interest rates down based on reduced growth and inflationary pressure.
This is being partially blamed by the Bank of England on the destabilising effect of a possible Brexit vote on the economy. See Table 5A below showing predicted Bank Base Rate by second quarter 2019 to be no higher than 0.8%.
Mark Carney, The Governor of the Bank of England said a vote to leave the EU “could possibly include a technical recession.”
“The Bank is saying that it would face a trade-off between stabilising inflation on one hand and stabilising output and employment on the other. So either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods. This is a lose-lose situation for Britain. Either way, we’d be poorer.”
The Bank of England Inflationary report below considering the effects of Brexit:
“The most significant risks to the MPC’s forecast concern the referendum. A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise. At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources. Sterling is also likely to depreciate further, perhaps sharply.
This combination of influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the May Inflation Report. In such circumstances, the MPC would face a trade-off between stabilising inflation on the one hand and output and employment on the other. The implications for the direction of monetary policy will depend on the relative magnitudes of the demand, supply and exchange rate effects. Whatever the outcome of the referendum and its consequences, the MPC will take whatever action is needed to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon.”
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