Wednesday, 5 October 2016

U.K. Economy Will Grow More Than Forecast, BOE’s Saunders Says

In World Economy News 05/10/2016

The U.K. economy will likely grow more next year than the Bank of England forecast in August, policy maker Michael Saunders said in his first public speech since joining the central bank.
Growth next year is “more likely to be clearly above 1 percent rather than (as the consensus expects) below 1 percent,” he said in a speech to be delivered Wednesday in Manchester. “Unless Brexit-related uncertainties rise sharply and/or global conditions disappoint markedly, I suspect that the U.K. economy will be not too bad in the year ahead.”
His comments add to evidence that the BOE may revise up its growth estimates on Nov. 3 when it announces its next policy decision. In August, the central bank said growth was likely to be 0.8 percent next year as it cut its benchmark interest rate for the first time in seven years in the wake of the decision to quit the European Union.
Since then, the economy has performed better than many expected and traders increasingly expect the BOE to refrain from another rate cut in the coming months.
Brexit Effect
Saunders does expect Brexit to have a “modest adverse effect” on long-run growth, he said. However, he cited the U.K.’s relatively loose financial conditions, the boost to exports from the pound’s weakness and a rebound in consumer confidence as factors that may help limit the economic fallout.

“Housing activity, in particular, may be less vulnerable to heightened uncertainty than the MPC’s August forecast implies, especially given the substantial backlog in housing demand and record-low level of mortgage rates,” he said.
Saunders voted with other officials to keep all elements of the stimulus package introduced in August unchanged. In his speech, he said that that while the bank has limited room to cut bank rate further, “substantial scope remains for stimulus through asset purchases.”
He said his decision in November will depend on the data, weighing his assessment that the economy has more slack than the BOE forecast against the possibility it is also growing more strongly.

Source: Bloomberg