Bank of England set to lower growth forecasts

 

The Bank of England is expected to downgrade its growth forecasts today and warn of more financial pain for households after figures confirmed inflation remained above target last month.

Economists predict central bank boss Sir Mervyn King will paint a grim picture of rising inflation and difficult economic conditions when the latest quarterly forecast is released.

In an unexpected statement to support its decision to keep interest rates on hold last week, the Bank's Monetary Policy Committee (MPC) warned inflation was likely rise in the coming months and might remain above the 2% target for another two years.

The Office for National Statistics (ONS) said that the Consumer Prices Index (CPI) held firm at 2.7% in January for the fourth month in a row.

Retail Prices Index (RPI) inflation, which includes housing costs, rose to 3.3% in January from 3.1% in December.

Experts predict energy price hikes and rising food prices could push CPI above 3% by the summer.

That means one of incoming Bank governor Mark Carney's first tasks this summer could be to write a letter to the Chancellor to explain why inflation is more than 1% above target.

As well as energy bill hikes and university tuition fees, inflation is being driven higher by the weaker pound, according to Howard Archer, chief UK and European economist at IHS Global Insight.

He said: "Once again the Bank of England will likely have the dismal task of raising its consumer price inflation forecasts and cutting its gross domestic product (GDP) growth projections."

The Bank is likely to admit it was overly optimistic in its November report, when it said inflation would fall back towards target in the second half of 2013.

Its forecast for 0.5% growth in 2012 has already been proven wrong after a worse-than-expected 0.3% decline in fourth quarter GDP left the economy unchanged overall last year.

The contraction - which left the UK on the brink of an unprecedented triple-dip recession - is likely to see the Bank trim its forecasts for 2013.

It downgraded its 2013 growth forecast to around 1% in November, but could bring this down yet again.

But Markit chief economist Chris Williamson said there might be a glimmer of hope for later in the year.

"The Bank will indicate that it expects a modest recovery later this year as the Funding for Lending scheme (FLS) has a beneficial impact and global economic conditions continue to improve," he said.

The Bank's multibillion-pound FLS scheme, which provides cheap money to lenders, has shown some encouraging signs of providing firepower to the economy after Halifax house prices recorded their strongest quarterly rise in three years in the three months to January.

Recent figures have pointed to a better start to 2013 for the wider economy, despite the snow impact.

The latest industry survey from the services sector - which accounts for around 77% of GDP - signalled a return to growth and the highest activity reading since last September.

Figures from the British Retail Consortium (BRC) also suggested the high street performed far better than expected, with like-for-like January retail sales growing at the fastest rate since December 2011, up 1.9% on the previous year.

The inflation figures from the ONS showed a hike in the price of alcohol and food costs offset a fall in clothes and shoe prices as Christmas discounts came to an end.

A shortage of vegetables in the UK contributed to the food price rises as more produce was sourced overseas.

Some economists had expected a price hike from energy giant E.ON on January 18 to push up inflation, but the ONS said the last of the "big six" energy hikes would be taken into account in February's figures.

Stubbornly high inflation - which has remained unchanged for four consecutive months for the first time since records began in 1996 - is causing problems for policymakers as they also weigh up the risks to the economic outlook.

The Bank held off from more money printing measures last week, keeping its quantitative easing (QE) programme at £375 billion, while it also kept interest rates at 0.5%.

Vicky Redwood, chief UK economist at Capital Economics, said there could be more QE in the pipeline after the MPC said it was prepared to "look through" the inflationary pressures.

She said: "If the economy continues to struggle, above-target inflation should not be a barrier to further stimulus. What's more, we still expect inflation to fall back towards the end of this year as underlying price pressures fade further."

PA

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
i100

Other places that have held independence referendums
Arts and Entertainment
Jack Huston is the new Ben-Hur
film

It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959

PROMOTED VIDEO
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

Arts and Entertainment
Blossoming love: Colin Firth as Stanley and Emma Stone as Sophie, in 'Magic in the Moonlight'
film

Actors star in Woody Allen's 'Magic in the Moonlight'

News
news

News
peopleThe Times of India said actress should treat it as a 'compliment'
Arts and Entertainment
Maxine Peake plays Hamlet at Manchester's Royal Exchange
theatreReview: Maxine Peake brings emotional ferocity to Shakespeare's starring part
News
London's New Year's Eve fireworks event is going to be ticketed this year for the first time at £10 a head
news

Revellers will have to pay to see New Year's Eve fireworks in London

News
news

Watch this commuter wage a one-man war against the Circle Line
Property
Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
News
ebooksAn unforgettable anthology of contemporary reportage
Travel
travel

...and the perfect time to visit them

Sport
Jonas Gutierrez (r) competes with Yaya Toure (l)
football

Newcastle winger reveals he has testicular cancer - and is losing his trademark long hair as a result

News
A male driver reverses his Vauxhall Astra from a tow truck
news

Man's attempt to avoid being impounded heavily criticised

Life and Style
tech

Try putting that one on your Christmas list
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week