No 'Plan B' for Brexit "twist and turns"

There were no surprises at the Bank of England's (BOE) 11 May decision to keep the Bank Rate where it was since August 2016, when it was lowered from 0.5% to 0.25% to contain the fallout from the 'Brexit' vote of the previous month - a decision that's become supportive of the on-going resilience of the British economy to Brexit uncertainties.

Despite BOE governor Mark Carney warning only last February of the "twists and turns" heading into Brexit - almost immediately proved true in mid-April when PM Theresa May called for general elections to be held on the 8th of June this year - the BOE remains optimistic over the growth outlook.

The British central bank even upgraded its GDP growth outlook to 1.7% (from 1.6% predicted in February) next year and to 1.8% (from 1.7%) in 2019 - the years when the UK and the EU are in the midst of negotiations.

As noted in the Monetary Policy Statement, "In the MPC's central forecast, weaker consumption this year is largely balanced by rising net trade and investment.  The outlook for global activity continues to improve.  Business surveys and Bank Agents' reports imply that business investment growth is likely to be higher in 2017 than previously projected.  The stronger global outlook and the level of sterling are providing incentives for many exporters to renew and increase capacity."

Decently rational forecasts that could even have an upside surprise should the strength in the labour market continue - one that would encourage consumer spending. The unemployment rate remained at a 12-month low in the three months to February and the lead from the claimant count unemployment numbers suggests it should stay around this level in the near term - the BOE predicts the unemployment rate at 4.7% this year and the next.

The BOE is sanguine about the inflation outlook too. Although "inflation is forecast to remain above the MPC's target throughout the forecast period ... this effect is expected to diminish towards the end of the forecast period". The BOE lowered its inflation forecasts to 2.6% (from 2.8% predicted in February) in the second quarter of next year and to 2.2 (from 2.5%) in Q2 2019.

"These projections depend importantly on three main judgements:  that the lower level of sterling continues to boost consumer prices broadly as projected, and without adverse consequences for inflation expectations further ahead; that regular pay growth remains modest in the near term but picks up significantly over the forecast period; and that more subdued household spending growth is largely balanced by a pickup in other components of demand."

These are also "conditioned on the assumptions that the adjustment to the United Kingdom's new relationship with the European Union is smooth".

It better be for the BOE has reportedly no "Plan B" for Brexit. Perhaps Gov Carney hasn't heard of Mr. Murphy's law.

Read more: BOEBrexitEUMark CarneyMPCTheresa MayBank of EnglandBank RateEuropean UnionMonetary Policy StatementUKUnited Kingdom
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