Bank of England downgrades UK GDP growth from 2.2% to 2.0% for 2016, from 2.4% to 2.3% for 2017, and from 2.5% to 2.3% for 2018.
Bank of England raises unemployment rate forecast from 4.8% to 5.1% for 2016, 4.8% to 5.0% for 2017, and 4.7% to 4.9% for 2018.
The combination of lower growth and higher unemployment forecast for the next few years confirms the more difficult economic climate that the UK is likely to face in the medium term.
It is also concerning that the Bank of England’s new forecast shows lower exports and weaker investment in 2016 than was the case in its February predictions.
The main message for business from the inflation report is that while the current interest rate policy will be conducive to maintaining stability, much greater efforts will be needed on the part of the government to boost growth at a time when circumstances will remain difficult.
While it is now clear that any thought of raising interest rates is off the agenda, in spite of the modest rise in inflation, the indication that the Bank of England’s MPC would be prepared to consider other options if required is welcome.
In the current climate British business requires stability with low interest rates, but if the economic slowdown continues or uncertainties mount, the Bank of England must be prepared to act resolutely to maintain the fragile recovery.