Wednesday, November 12, 2014
Bank trims growth and inflation forecasts as wages pick up
Posted by David Smith at 11:45 AM
Category: Thoughts and responses

The Bank of England has taken a slightly more downbeat view of growth and a very downbeat growth of inflation over the next few months, with Mark Carney, the governor, warning that consumer price inflation could drop below 1%. If so, this will trigger the first letter from a governor to explain why inflation has undrshot the inflation target by more than 1% - all previous letters have been to explain an overshoot.

Carney, in his opening remarks, was downbeat about the global picture, saying: "Since we last met, indicators across much of the advanced and emerging world have been moribund. A spectre is now haunting Europe the spectre of economic stagnation, with growth disappointing again and confidence falling back."

But the Bank has only marginally revised down its growth forecast for next year, to 2.9%, though inflation will remain close to 1% over the next year with it "more likely than not" that it will dip below 1% at some stage. That has eased the pressure on the Bank to hike rates, with the first move now not expected until autumn of next year. Though this dovish tone was expected, sterling has slipped in response to the report. The inflation report is accessible here.

One positive factor cited by Carney was the prospect of real wage growth. The latest labour market statistics supported him. Official figures show that total pay in September was 1.4% up on a year earlier, with the numbers for the latest three months showing a rise of 1%. The figures for the private sector were 1.6% and 1.1% respectively, and for the public sector excluding financial services 1.6% and 1.4%.

Regular pay increases were 1.8% and 1.3% respectively, with the private sector up 2.3% and 1.6%. These figures were stronger than expected. The details are here.