Bank of England Downgrades Growth Forecast

GBP

The Bank of England has left its interest rate unchanged at 0.75% in a unanimous vote as expected but changed their tone on growth forecast for Q2. The BOE had previously predicted growth of 0.2% over the period but have now lowered their forecast to 0%. The committee said the downgrade in forecast was partly due to stock building by companies ahead of Brexit deadlines. In the run-up to the end of March, when the UK had originally been expected to leave the European Union, businesses from pharmaceuticals companies to food manufacturers stockpiled goods. They wanted to be ready in case the UK left the EU without a transition deal, which they feared could lead to delays at UK borders.

The committee said in its minutes that after the economy grew by 0.5% in the first three months of 2019, it now expected zero growth in the second quarter. The MPC went onto say “that in part reflects an unwind of the positive contribution to GDP in the first quarter from companies in the United Kingdom and the European Union building stocks significantly ahead of recent Brexit deadlines,.”

Lastly the BOE is aiming to keep inflation within one percent either side of its target 2% as it announced that inflation had fallen to its target of 2% in May, easing the pressure on the Bank to raise rates to keep prices under control. Furthermore the Bank believes keeping inflation in that zone will ‘help sustain growth and employment’.

Key Announcements

09:00 – EUR: Flash manufacturing PMI – Forecast at 48 from previous 47.7
09:00 – EUR: Flash services PMI – Forecast at 53 from previous 52.9