(MENAFN- Gulf Times) The Bank of England will probably raise its economic growth forecasts next week, setting the scene for a potential interest-rate increase within months.
In a survey for Bloomberg, all but one of 17 economists see the BoE lifting its 2018 projection on Thursday, with the predictions for the next two years most likely to be left unchanged. The central bank will publish its new outlook alongside its latest policy decision and analysis on the supply side of the economy.
The benchmark rate will likely stay at 0.5% next week after officials raised it for the first time in over a decade in November. But bets on the timing of the next hike have shifted recently, with a growing number now seeing the next move happening in May.
Officials said last year that the economy's potential growth rate — and, by extension, its ability to expand without generating unwanted price pressures — had diminished, and tighter monetary policy would therefore be needed over the coming years. Since the BoE's last projections, output and wage growth have both come in faster than expected.
Governor Mark Carney this week gave a relatively upbeat view of the economy and hinted at a forecast upgrade by the BoE, saying the International Monetary Fund's 1.5% projection for 2018 was a little low. The bank's November forecast is already a little higher, at 1.6%.
'We won't exactly agree with the IMF forecast, I think it's a little light for the economy for 2018, he told an economics committee in the UK parliament on Tuesday.
A forecast upgrade, if accompanied by a view that spare capacity is fast being eroded, would paint a picture of an overheating economy requiring tighter monetary policy.
Nevertheless, Brexit remains a risk, and policymakers have stressed that the UK's disentanglement from the European Union could ultimately result in policy being changed in either direction. While 41% of economists in the survey say rates will go up in May, a sizeable 28% see no move until 2019, the year the UK is due to formally quit the bloc.
EY Item Club predicted yesterday that the BoE will raise its benchmark interest rate twice this year, when it raised its 2018 economic-growth forecast.
The group expects the BoE to follow November's 25 basis-point hike with one in May and another in November, it said in its Winter Forecast. That would lift the benchmark to 1%.
Item Club aren't alone in predicting a rate increase in the first half, though they will caution that it's a 'close call for them whether the BoE goes once or twice this year.
Other forecasters and investors have increased bets on a May rate hike. That's partly due to better-than-expected GDP and labour-market numbers for the end of 2017.
Item Club lifted their 2018 growth prediction to 1.7% from 1.4% because of the stronger final months of last year and the probability that the UK and EU agree on a Brexit transition arrangement, providing greater certainty to businesses. They also see inflation easing and a gradual improvement in wage growth, which will support consumer spending.
On the longer-term outlook, Item Club trimmed its predictions modestly and warned that UK growth will remain below its trend rate and also struggle to match the pace of other developed economies.
Last updated: February 04 2018 10:46 PM
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