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Bank of England cuts growth forecast amid wages warning

Bank of England cuts growth forecast amid wages warning

And it has consistently stressed that as a result, the implications for monetary policy would not be automatic.

But investors saw no sign that the BoE was in a hurry to raise rates, a contrast to the outcome of its June meeting.

Speculation over the likelihood of the Federal Reserve raising interest rates again before the end of the year could also put pressure on risk-sensitive Australian Dollar, with a strong U.S. non-farm payrolls report having the potential to send the GBP AUD exchange rate to a fresh high. Shares rose and British government bond prices jumped.

The Bank of England has cut its economic growth forecast for this year and next, warning that households will see a fall in their real take-home pay this year and that output growth will remain below its normal expansion rate for some years.

THE BANK of England today cut its forecasts for the size of economy and warned that consumers face a continued squeeze on their income.

The BoE faces the extra challenge of Britain's leaving the European Union, and its uncertain impact on Britain's economy. But the Bank nevertheless downgraded its investment growth forecasts for this year to 1 per cent, down from 1.75 per cent previously.

The assumption of a smooth Brexit will be tested.

The BoE cut its estimate for 2017 GDP growth to 1.7% from a forecast of 1.9% given three months ago, it said in a report accompanying the latest monetary policy update. It kept its 2019 forecast at 1.8 percent.

At the June meeting, the vote split was 5-3, but the more hawkish tilt was due to a different composition on the Monetary Policy Committee. One of the three has since left the committee.

Ian McCafferty and Michael Saunders were the two MPC members that dissented in favor of a 25 basis points rate hike, expressing concerns over rising inflation.

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Sterling hit a 10 month high yesterday, as investors anticipate this week's Bank of England "Super Thursday" for a steer on whether record-low interest rates could soon be lifted for the first time in more than a decade.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said it was no surprise that the BoE made a decision to hold fire on lifting interest rates given the slowdown in economic growth and consumer spending.

But U.S. bank Citi said the BoE was probably more anxious about the risks of a disorderly Brexit than it let show.

"The door is still open to a hike, but it doesn't look imminent", Alan Clarke, a rate strategist with Scotiabank said, as quoted by Reuters.

The Bank also confirmed it will withdraw the Term Funding Scheme (TFS), part of the monetary policy stimulus introduced past year in the aftermath of the Brexit vote to boost bank lending.

The last Monetary Policy Committee (MPC) meeting saw a surprise shift in the plate tectonics among policymakers, with three of eight members voting for an increase in United Kingdom interest rates.

"Votes are discrete events though so it's not worth reading too much into this, particularly as we'd expected the loss of Kristin Forbes to mean fewer hawks", suggests Wilson.

Currently, inflation is running at 2.6%, while wage growth is just above 2%, meaning that regular Brits are now bringing in less in wages than prices are growing, effectively lowering their real incomes.

UK GDP growth fell back in the first half of 2017 and is expected to remain at 0.3% in Q3 before picking up slightly at the end of the year.


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