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Latest from the Bank of England

The Bank of England provided a mixed update yesterday. Interest rates were kept on hold with the MPC voting to keep the base rate at its current level of 0.25%. Although the policy makers currently assume that the UK’s departure from the European Union will be relatively smooth, uncertainties around the process and the expectation of weak real wage growth was strong enough justification for the decision.

 Mark Carney, the Bank of England governor, warned that households could face a more challenging time this year, forecasting that wage growth is unlikely to keep up “with the prices for goods and services they consume.”

 There was also a revision to economic growth for this year, with the latest forecast downgraded from 2% to 1.9%. Growth for the first quarter of 2017 was recently released, showing an increase of 0.3% on the previous 3 months, 2.1% year on year.


 Finally the central bank also raised its inflation projection. They now predict that it could peak at 2.7% this year compared to the previous forecast of 2.4%. The Bank of England has an inflation target of 2%. This reflected the effects of import prices due to a weaker sterling. For an extended period of higher inflation higher wage growth would need to be seen.

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Paul Milburn

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