Bank likely to cut growth forecasts

Wednesday 12 November 2014

The Bank of England is expected to cut forecasts for growth and inflation when it publishes its latest outlook for the UK economy today.

Its quarterly inflation report is likely to cement the view that interest rates will remain on hold at 0.5% until well into 2015, after the general election in the spring.

Earlier this year a hike had been expected as soon as this month, but stagnating wages and low inflation, added to the effect of weakness in the eurozone, have persuaded the Bank to stay its hand. Last month Threadneedle Street's chief economist Andy Haldane broadly signalled that darkening economic prospects meant rates were unlikely to rise until the middle of next year.

The Bank's most recent forecasts for growth domestic product (GDP), which see the UK growing by 3.5% this year and 3% in 2015, are already more optimistic than other predictions.

Official figures for the third quarter of 2014 showed growth of 3% compared to the same period of 2013, a slowdown on earlier this year.

Survey data for October suggested a further easing off in the recovery, showing the dominant services sector - representing more than three-quarters of output - seeing its slowest growth since May last year.

This week the CBI's latest economic outlook maintained its GDP forecast at 3% for this year but it has cut expectations for 2015 from 2.7% to 2.5%.

Director-general John Cridland cited the "choppier" backdrop of sluggish growth in Europe together with heightened tensions in Ukraine and the Middle East, and slowing growth in China.

The prospect of interest rate rises has been further eased by the picture on inflation, which is at a five-year low of 1.2%.