y Sumeet Desai and Philip Uglow
LONDON (MktNews) - The Bank of England said Wednesday that it has revised down its profile for UK growth and inflation because of the deterioration in the global economy since November and attached clear downside risks to its forecasts.
In its quarterly inflation report, the BOE said it expects RPIX to remain steady at around 2% through this year before rising to toward its 2.5% target at the end of the two-year forecast horizon. Risks are clearly on the downside, the BOE said.
The BOE said inflationary pressures are weaker than in November, reflecting the impact of lower growth and energy prices. As in the last inflation report, some members prefer alternative assumptions about supply-side developments, while some members also prefer an alternative assumption about the extent and consequences of the US slowdown.
In combination these could lower the inflation profile at the forecast horizon by up to 0.5pp. The report did not mention whether any members preferred a RPIX forecast that was higher than the central projection.
Economic growth is now seen dipping to around 2% in the second half of this year before rising to trend. The BOE said this profile is also weaker than at the time of the November report. But the MPC played down the significance of the slowdown in GDP growth seen in the fourth quarter of last year. It said this was mostly due to temporary factors and that the committee judged that underlying growth is currently close to trend.
Risks to the growth profile are also clearly on the downside, the BOE said.
As with inflation, these stem "in particular from the risk of a deeper or more prolonged slowdown in the United States."
There is also a downside risk from private sector demand slowing by more-than-expected although consumption is seen continuing to grow briskly.
The BOE said that these downside risks substantially outweigh the upside risks from earnings growth turning out higher-than-expected. The BOE said that while this has so far remained benign, it will be monitoring wage settlements very closely.
On the housing market, the BOE said forward-looking indicators have strengthened but alternative price indicators have pointed in different directions in recent months. "Taking all the evidence together, there seems to be relatively little change to housing market prospects. As in the November projection, house prices are likely to rise a little faster than earnings over the next two years."