BoE Scales Back Growth Forecast but is Optimistic

BoE ScaleBoE Scales Back Growth Forecast but is Optimistics Growth Forecast but is Optimistic

Today, the Bank of England (BoE) released its quarterly inflation report. There are two main things the market is concerned about from this report.
1) Growth projection
2) Inflation projection

1)  According to Reuters, the BoE lowered its GDP projection for 2015 to 2.4%, down from the 2.9% projected in February. The bank also lowered the 2016 and 2017 GDP projections to 2.6% and 2.4% respectively.

Still, the BoE showed cautious optimism:

“Domestically, the projection is for solid demand growth. The boost to household spending from lower energy and food prices is sustained by a pickup in wage growth. Business investment growth remains robust, reflecting the low cost of finance and the broader recovery in demand. Supply growth is supported by a gradual pickup in productivity growth. There remain considerable uncertainties around the timing and extent of that pickup.” (BoE Inflation Report).

GDP projection based on market interest rate expectations and £375 billion purchased assets:
BoE inflation projection
(click to enlarge; source: BoE Inflation Report 5/13) 

2) Inflation is expected to be weak in the short-term, but the outlook remains optimistic starting at the end of 2015:

“In the very near term, inflation is projected to remain close to zero, as the past falls in food, energy and other goods prices continue to drag on the annual rate. Towards the end of 2015, inflation rises notably, as those effects begin to drop out. As the drag from domestic slack continues to fade, inflation is projected to return to target within two years and to move slightly above the target in the third year of the forecast period.”

“The MPC considers that on balance these factors point to downside risks to the inflation outlook in the first half of the projection, relative to the central path. Inflation is judged as likely to be above as below the 2% target by early 2017, with the likelihood of inflation being above the target then rising a little further”  (BoE Inflation Report).

CPI inflation projection based on market interest rate expectations and £375 billion purchased assets
BoE CPI Projection 5/13
(click to enlarge; source: BoE Inflation Report 5/13)

The Bank of England is optimistic about growth but note that this optimism is based on the current stimulus measures and low interest rate. This means, that while the BoE is no longer dovish (not looking to cut rates), it still has ways to go before it can consider raising rates.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at