By Emily Trescothick
As reported on CNN Business, the U.K.’s economic future is looking well, brighter. The Bank of England (BoE) has recently increased its growth expectations for 2017, offering some comfort of Britain’s economic prospects after the gloomy forecasts it predicted after the initial impact of Brexit. The BoE expects growth to hold constant at 2% this year which is the same expansion rate as 2016 and a massive jump from the initial estimates of 0.8% in August and 1.4% forecast, made in November.
So why the large change?
The BoE stated that the outlook has improved after the effects of the stimulus package it launched following the devisive referendum vote last June. A steadying global economy, rallying stock markets, robust customer demand and “supportive credit conditions” have also helped lift the gloom.
A statement from BoE said, “Domestic demand has been stronger than expected over the past few months, and there have been relatively few signs of the slowdown in consumer spending that the (central bank) had anticipated following the referendum.”
However, BoE warned that consumer spending could soon falter.
A sharp drop in the value of the pound following the Leave win is resulting in higher prices for imports such as food and electronics. There is also slow pay growth expected that will have an impact on household spending over the next few years.
For the moment at least, the general trend in the UK is for consumers to borrow more and save less to support their chosen lifestyles. Data released by the BoE show household savings rates are down to similar levels last seen before the global financial crisis and credit cards are funding household purchases as well as an increase in the number of car loans.
Despite this, the BoE Governor, Mark Carney has been quoted as saying that Britain is not experiencing “a debt-fuelled consumer expansion.”
Further predictions into 2018 are expected growth to slow to 1.6% before improving to 1.7% the following year.
This coincides with the expected two year negotiation period for Brexit, as the U.K. prepares to divorce itself from the E.U., with some expecting that job prospects and trade to be negatively impacted. One of the biggest negotiation points being a new trading relationship with the bloc and its 27 members having currently having free movement on capital and people.
What are your thoughts? Do you think that the increase in predicted growth in 2017 demonstrates that there was an initial period of ‘scaremongering’? Do you think that Brexit will overall have a positive impact on the U.K.’s economy? Do you think that the new increase is over optimistic given the other warning signs in the borrowing culture in the U.K.?