Bank of England cuts its growth forecasts for the UK

Bank of England

Bank of England

The minutes from the MPC meeting reiterated that the central bank might be required to hike interest rates faster than the very gentle rising path suggested by the market yield curve.

The Bank confirmed that it now expects the economy to grow by 1.7 per cent this year, down from a previous forecast of 1.9 per cent. Growth is now tipped to slow to 1.6 per cent in 2018, down from a previous forecast of 1.7 per cent. Eurostat's "flash" estimate showed on Tuesday that the eurozone's GDP grew at twice the rate of the UK's in the second quarter of 2017.

Markets are now pricing in a rate rise from the MPC towards the end of next year, but the bank said "monetary policy could need to be tightened by a somewhat greater extent", than previously expected in future. By 2pm BST, the pound was 0.78% lower against both the dollar and the euro, trading at $1.3118 and €1.1062, as the common currency moved towards its highest level against sterling since November a year ago.

Sterling has retreated from early gains after the Bank of England cut United Kingdom growth forecasts and warned households' disposable income will decline next year, while the Monetary Policy Committee (MPC) voted to hold rates at 0.25%. "The chances of a 2017 rate hike now look dead and buried".

He added: "The assumption of a smooth transition to a new economic relationship with the European Union will be tested".

Kristin Forbes' departure from the BoE will likely lead to a 6-2 vote in favor of keeping interest rates unchanged today, with Ian McCafferty and Michael Saunders to remain the two dissenters. Monetary policy can not prevent the weaker real incomes likely to accompany the move to new trading arrangements with the EU.

On Thursday, the Bank said it saw GDP growth of 1.7 per cent this year, down from the 1.9 per cent it projected in May.

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The governor of the Bank of England warned that the economy will remain "sluggish" as he said Brexit is hitting households and businesses.

Financial markets, particularly sterling, marked down the UK's relative prospects quickly and sharply. It is now expecting wages to contract this year by 0.5 per cent on an inflation-adjusted basis.

"Of course, it could perhaps be that traders are only concerned with the near-term expectations of the BoE given its history of bad forecasts and the sheer amount of uncertainty in the economic outlook due to Brexit".

British inflation is being supported by a Brexit-fuelled slump in the pound pushing up import costs - although the annual rate managed a slowdown to 2.6 percent in June from a near four-year high of 2.9 percent in May.

Inflation is then forecast to fall to 2.58% in 2018, before peaking at 2.19% and 2.22% in 2019 and 2020 respectively, marginally above the Bank's 2% target.

Speaking to BBC radio, Broadbent told that there are possibilities for interest rates to go up a little than expected by the financial markets.

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