London — On Thursday, the Bank of England (BoE) cut its forecasts for British growth as it left its main interest rate at a record low 0.25% following a regular monetary policy meeting.
"Households looked through Brexit-related uncertainty initially, but more recently ... they have cut back on spending, slowing the economy," BoE governor Mark Carney told a press conference on Thursday. "Businesses have been somewhere in between."
The BoE cut its estimate for 2017 GDP growth to 1.7% from a forecast of 1.9% given three months ago, it said in a report accompanying the latest monetary policy update.
It expects GDP growth to fall back to 1.6% next year, down slightly on the previous expectation of 1.7% expansion. In minutes from its latest meeting, the BoE said GDP "remains sluggish in the near term as the squeeze on households’ real incomes continues to weigh on consumption", as Britain gears up to exit the EU against a backdrop of high domestic inflation.
While the BoE voted six to two to keep the interest rate unchanged, policy makers agreed to increase its cheap lending for retail banks before the expiry of the term funding scheme next February. Recent official data showed that Britain’s economy advanced slightly in the second quarter, pulled higher by the key services sector despite high inflation and uncertainty over Brexit.
The rise in prices sits alongside weak average earnings growth in the country, reducing the chances of an interest rate hike from the bank this year mirroring the policy of monetary tightening in the US.
British inflation is being supported by a Brexit-fuelled slump in the pound pushing up import costs — although the annual rate managed a slowdown to 2.6% in June from a near four-year high of 2.9% in May.