Bank of England Warns of Rising Squeeze on Consumers Spending

BOE - Bank of EnglandMark Carney who is the Governor of Bank of England (BoE) has issued a warning that the consumer spending of United Kingdom might dip in 2017 because of decline in real wages and increasing inflation. Carney while making a presentation on UK economy assessment has speculated that living standards of British households might take a toll in this year but would start recovering from next year onwards.

According to Carney, smooth Brexit is imperative for recovery because the inflation has been the highest in the past three years and is likely to rise high because of pound weakening. The inflation for this year has been forecasted at 2.4% for 2017, but in the latest quarterly inflation report, inflation has increased to 2.7%. The Governor is of the opinion that raising the interest rate would not be a plausible method to tackle this issue.

Although wage growth is not going hand in hand with inflation at the moment, the Bank of England’s governor is optimistic about its outlook for the next year. He has observed that due to prevailing uncertainty, the companies are not in a position to make a hike in wages.

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The Chief Economist Lucy O’Carroll at Aberdeen Asset Management has made the following statement:

The Bank of England is stuck between a rock and hard place. It has to base its forecasts on a view of the Brexit deal but, with so little to go on at present, it’s not an easy judgement. To say that is far from certain is a huge understatement. Governor Carney acknowledges the risks, but the weight of uncertainty – and therefore frailty of the forecasts – does undermine the Bank’s relatively positive message.

The comments of Carney came as the latest report from Bank of England showed a decrease in the economic growth of United Kingdom forecasts for the current year, reducing it from 2 to 1.9 percent. The interest rate is retained by the bank at 0.25 percent. Carney believes that smooth Brexit will allow the United Kingdom in securing an agreement with regards to trading relationships and a transition period will be put into place for the intervening time.

Paul Hollingsworth from the Capital Economics consultancy has speculated there would be a hike in the interest rates sooner than anticipated and has cited his comments in the current inflation report. Policy makers are optimistic about the decline in consumer spending which in turn will increase the business investment and trades as weak Pound (Cable) currency boosts exports.

Few market analysts are doubtful about the optimistic outlook of Carney. The head of economics at British Chamber of Commerce, Suren Thiru, has commented that the economic growth would be hurt by inflation rate and in the coming few years the wage growth is likely to remain below price growth.

Rich Archer

Rich Archer

Hi, my name is Rich Archer. I am living in London. Welcome to Binary Manual. Reach to Binary Options broker reviews and market news here.


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