BOE Revised Lower Growth and Inflation Forecasts
The BOE released a dovish quarterly inflation report in May, lowering both inflation and GDP growth forecasts from February projections. Policymakers also cited the worsening situation in the Eurozone would affect the UK’s path to recovery and there was a “risk of a storm heading our way from the continent”.
The central bank revised down its growth forecast for this year to +0.8% from +1.2%. The growth forecast in 2 years fell from +3% to 2.6% in the latest report. As stated in the report, prospects for the country’s growth are “unusually uncertain”. While “stimulus from monetary policy should help to support activity”, “continued strains within the euro area, tight credit conditions and the fiscal consolidation are all likely to temper the pace of expansion”. Policymakers concerned that the Eurozone crisis would be the biggest threat to UK’s recovery with Governor Mervyn King saying the bloc was “tearing itself apart” and the UK would not be “unscathed”. He said that there was a “risk of a storm heading our way from the continent”.
Concerning inflation, the forecast in 2 years was revised to +1.6% from previous projection of +1.8%.
