Bank of England cuts forecasts through 2017

Mark Carney said UK growth is susceptible to any escalation of the Greek debt crisis after the Bank of England cut its forecasts through 2017.

“An intensification of the Greek crisis would have an impact on global growth and would have a modest impact on UK growth,” the BOE governor said at a press conference in London on Wednesday.

He said European Central Bank stimulus, improvements in euro-area fundamentals and limited UK.exposure would "come together to mitigate some of the spillovers from what would be an undesirable event."

Mr Carney said gradual interest-rate increases will be enough to get inflation back on track as the Bank of England.

The central bank’s view, published in the quarterly Inflation Report on Wednesday, endorsed investors’ expectations that policy tightening may not start until the middle of next year.

The BOE, which sees inflation returning to its 2 per cent target within two years, lowered its 2015 growth forecast to 2.5 per cent from 2.9 per cent in February.

“The most important legacies of the financial crisis are the persistent headwinds which continue to weigh on the UK economy,” the BOE governor said at a press conference in London. These require “not only a more gradual rate of increase in bank rate than in previous cycles, but also require levels of bank rate to remain below average historical levels for some time to come.”

With consumer-price growth at zero, the report was accompanied by a letter from Carney explaining the deviation from the BOE’s goal. While the governor said inflation may dip below zero in the coming months, there will be a pickup at the end of the year, and the next move in borrowing costs is likely to be an increase. The BOE rate has been at a record-low 0.5 per cent for more than six years.

Bloomberg