Reacting to the Monetary Policy Committee’s unanimous vote in favour of maintaining the historic low rates and continuing its asset purchasing programme, unsurprised economists predicted the need for additional stimulus from the bank in 2017 in anticipation of “disappointing growth” in the UK.
David Page, senior economist at AXA Investment Managers (AXA IM), forecasts growth of just 0.9% in 2017, lower than the Bank of England’s prediction of 1.4%. and so expects further modest stimulus measures from the MPC next year.
He said: “We continue to see downside risks to the MPC’s November growth outlook.
“Materialisation of our view, with inflation expectations broadly stable, is likely to see the MPC revert to the August-November 2016 bias for further stimulus. We consider further stimulus likely in the UK, but only after disappointing growth.
“We forecast a 0.15% Bank rate cut and more QE, pencilling in August 2017 for now.”
Twelve-month CPI inflation, currently at 1.2%, is expected to hit the 2% target within the next six months, the MPC said, but it warned that real incomes for households could slow and weaken spending while uncertainty caused by Brexit could reduce business activity and slow growth overall next year.
Royal London Asset Management economist Ian Kernohan said the MPC will be “sensitive” to any economic slowdown next year, and also predicts a further cut.
He said: “In my view, the balance of probability still favours another small rate reduction next year, and with the Fed hiking rates, this will continue to put downward pressure on sterling against the dollar.”
