Wednesday, August 11, 2010
Bank still cautiously optimistic
Posted by David Smith at 12:30 PM
Category: Thoughts and responses

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The Bank of England revised down its growth forecasts and revised up its inflation projections, as expected, though the tone remained cautiously optimistic. Its growth forecasts, reproduced above, remain higher than many independent forecasters, including the new Office for Budget Responsibility.

The Bank also tried to head off headlines blaming George Osborne's austerity budget on June 22 for the growth downgrade. Though growth was revised lower, this was for a range of factors, Mervyn King said, and the budget would remove one of the downside risks to growth, that of an upward spike in long-term interest rates.

As for inflation, the forecast change here is more marked, and attributed mainly to the budget announcement of a hike in VAT to 20% in January next year. The promised land, of a reduction in inflation to below the 2% target in 2012 and 2013, remains. The inflation report is here, and the inflation chart is below.

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The latest labour market data were somewhat mixed. Employment rose by 184,000 in the three months to June and unemployment fell by 49,000 to 2.46 million. But there was a hint of softening in the claimant count, down by only 3,800 to 1.46 million in July.