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BCC: Bank Must ‘Look Through’ Inflation Rises and Focus on Growth

Commenting on the Bank of England’s Inflation Report, Suren Thiru, Head of Economics at the BCC, said:

“The substantial downgrades to the Bank of England’s latest forecast for UK growth in 2017 and 2018, combined with expectations that unemployment will rise, give the context to the MPC’s decision to cut rates and expand QE.

“While the scale of the downgrade mostly reflects the greater political and economic uncertainty in the wake of the Brexit vote, it is significant that this is the fourth successive inflation report in which the bank’s expectations for UK growth have been weakened - confirming that the UK’s economic outlook was softening long before the outcome of the EU referendum was known. Our own survey data showed that UK growth has been static over the last quarter.

“The sharp upward revision of inflation forecasts confirms that the key policy challenge for the MPC in the near term will be managing the trade-off between higher inflation and a weakening economy. However, we fully expect that the MPC will continue to ‘look through’ any temporary rise in inflation and focus on supporting growth.

“Overall, the forecast downgrades send a clear message that more needs to be done to combat the increasing uncertainty facing businesses. This includes improving incentives for business investment and addressing some of the long-term, structural issues facing the UK economy, such as our chronic underinvestment in infrastructure.”

Last modified on Thursday, 04 August 2016 14:53

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