Bank of England sees higher UK growth ahead of Brexit

Friday, 3 May 2019 00:00 - - {{hitsCtrl.values.hits}}

Bank of England Governor Mark Carney speaks to a journalist's question during an Inflation Report Press Conference at the Bank of England in the City of London, Britain - REUTERS

LONDON, AFP: The Bank of England on Thursday raised its forecast for UK economic growth this year to 1.5% from 1.2%, as stockpiling offsets lower business investment elsewhere ahead of Brexit.

Economic activity was given a temporary boost as companies rushed to stockpile components and goods before the original 29 March Brexit deadline, the BoE said alongside an announcement that it had kept its main interest rate at 0.75%.

“Brexit-related uncertainty has led to a reduction in business investment and an increase in stock building,” it said Thursday.

“In comparison, household spending has been relatively resilient, although the housing market has remained subdued.” The BoE added that the UK economy was expected to expand by 1.6% in 2020, up slightly from its earlier guidance of 1.5%.

Britain is now due to leave the European Union on 31 October after two delays that were triggered by MPs rejecting the divorce deal British Prime Minister Theresa May had struck with the bloc.

The delays boosted gross domestic product (GDP) in the first three months of 2019, but the BoE anticipates a moderate slowdown in the second quarter.

“GDP is expected to have grown by 0.5% in the first quarter, in part a reflection of a larger-than-expected boost from companies in the United Kingdom and the European Union building stocks ahead of recent Brexit deadlines,” the Central Bank said. “That boost is expected to be temporary, however, and quarterly growth is expected to slow to around 0.2% in the second quarter.”

It added: “Smoothing through those developments, the underlying pace of GDP growth appears to be slightly stronger than previously anticipated, but marginally below potential. That subdued pace reflects the impact of the slowdown in global growth and ongoing Brexit uncertainties.”

The BoE announcement comes one day after the US Federal Reserve dented prospects for a possible cut in American interest rates as solid US economic growth helps to offset a slowdown elsewhere.

News of the BoE’s growth upgrades also comes after it recently fired the starting gun on the search for a replacement for Governor Mark Carney.

The Canadian leaves his role on 31 January, having extended his tenure twice owing to Brexit turmoil.

Carney, 54, took up the post in July 2013, with the UK economy struggling to recover from the global financial crisis and with the Bank of England’s main interest rate at a then record-low 0.50%.