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Financial News: EY ITEM Club Urges BoE Not To Hike

EY ITEM Club Urges BoE Not To Hike Rates Until Economic Prospects Look Brighter

10/16/2017 - 07:41:00 (RTTNews)

(RTTNews) - The EY ITEM Club urged the Bank of England to hold off from lifting interest rate until economic prospects look brighter.

Markets expect the BoE to hike the rate from a record low this November, EY ITEM Club said in its Autumn Forecast.

However, the think tank advised the bank to wait until economic prospects look brighter and there is greater certainty over the Brexit transition arrangement.

The EY ITEM Club said the economy is likely to continue to struggle for momentum in the fourth quarter of 2017 and early 2018. The think tank forecast 1.5 percent growth this year before slipping to 1.4 percent in 2018.

While it is understandable that the Monetary Policy Committee will want to gradually normalize interest rates from their current 'emergency levels', it would be better to do so once the economy is on a stronger footing, Howard Archer, the EY Item Club's chief economist, said.

EY Item Club forecast inflation to fall back to 2 percent by the end of 2018 as the effects of sterling's slide fade. This should bolster consumer purchasing power, while earnings growth should pick up gradually.

Much depends on how the Brexit negotiations develop, the think tank said. Progress towards a transition deal in late 2018 should support business confidence and a gradual pick-up in investment, helping GDP growth accelerate to 1.8 percent in 2019 and 2.0 percent in 2020.

The latest forecast assumed a transition arrangement will happen and that the details will be clear by October 2018, creating more certainty and encouraging higher business investment in the later years of the forecast.

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