The Bank of England has cut its UK growth forecast for 2015 from 2.9% to 2.5% and for the next year, 2.9% to 2.6%, governor Mark Carney revealed in his quarterly inflation report. Despite this, the UK is still a country with one of the fastest growth rates in the developed world.
Deflation could emerge during the year, but inflation was expected to pick up towards the end of the year, Mr Carney also commented. In March, inflation was at 0% for a second month in a row, which is well below the Bank’s 2% target.
The figure marks the lowest rate of Consumer Prices Index inflation since estimates of the measure was first brought into effect in 1998. To add to this, for over six year the Bank’s base rate has been at a record low of 0.5%.
Mr Carney blamed falling inflation on a sharp fall in energy prices, decreasing food prices and strong sterling. He also said that these factors explained about three-quarters of the fall in inflation. Inflation should return to its 2% target within two years before rising above this, he said.
In terms of wage growth, the Bank lowered expectation in 2015 from 3.5% to 2.5%. The Bank did not give a positive reaction to productivity growth as it sees a disproportionate number of new jobs as low skilled and low-output. In the coming year, productivity growth is forecast to improve modestly before remaining below past average rates.