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Peer2Peer Finance News | August 22, 2017

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Bank of England revises down growth forecast as rates are held

Bank of England revises down growth forecast as rates are held
Suzie Neuwirth

THE BANK of England has revised down growth forecasts for the UK as it held interest rates yet again this month.

It is now a year since the last cut in the Bank of England base rate, with many expecting a rise could be imminent.

But while three of the nine Monetary Policy Committee members voted for a hike in July, just two backed an increase this month.

The Bank’s inflation report said it expected economic growth of 1.7 per cent in 2017 and 1.6 per cent in 2018, down from 1.9 per cent and 1.7 per cent in previous forecasts.

The report maintained expectations on inflation, predicting it would peak at around three per cent in October.

Read more: Bank of England takes action to ward off consumer credit boom

Analysts were not surprised that rates were held.

“The UK economy is faltering and consumer purses are under pressure, so it’s no surprise the Bank of England has decided not to upset the apple cart by raising interest rates,” Laith Khalaf, senior analyst at Hargreaves Lansdown, said.

“June also saw a surprise drop in inflation, relieving pressure on the central bank to tighten policy.

“However, consumer borrowing still looks to be building up, and has now breached the £200bn mark for the first time since 2008.

“Meanwhile the FCA is warning that 2.2 million borrowers are in financial distress, despite ultra-low interest rates, which means the Bank of England is going to have to remove the sticking plaster of loose monetary policy very slowly indeed.

“Unfortunately, that spells many more years of poor returns for cash savers.”

Read more: Savers urged to look for cash alternatives as inflation hits new high

Meanwhile, the Federation of Small Businesses (FSB) was pleased that rates were held.

“Against a backdrop of slowing economic growth, increased debt costs would put yet another strain on our embattled small business community,” Mike Cherry, national chairman of the FSB, said.

“Any firm that’s set up in the last 10 years has only known business life in a low interest rate environment. They must be ready for that to gradually change at some point. It’s critical that the government steps up its efforts to inform small business owners about what higher rates will mean for borrowing costs, consumer demand and the property market.

“Operating costs for small firms are now at their highest in four years. With inflation set to pick up again towards the end of the year, our entrepreneurs need support.

“Many are paying themselves less and further increasing prices in an attempt to handle the squeeze. The last thing they need is hikes to stealth taxes, particularly fuel duty and insurance premium tax, as part of attempts to paper over gaps in the public finances.”

Read more: Savers hit by “toxic combination” of low rates and rising inflation