The FINANCIAL — The Bank of England cut its growth forecasts for the U.K. economy on May 13, but signaled it remains on course to lift its benchmark interest rate from its historic low in the middle of next year, according to Nasdaq.
The BOE said in its quarterly inflation report that it expects the U.K economy will expand 2.5% in 2015 and 2.6% in 2016, compared with its February forecasts for growth of 2.9% this year and next.
The central bank said the weaker outlook reflects factors including the recent strength of the pound, a sluggish housing market and poor productivity.
It added the risk of a disorderly end to Greece’s efforts to reach a new deal with its international creditors over repaying billions of euros in financial aid is casting a further pall over the U.K.’s prospects.
The fresh forecasts come just days after Britons returned Prime Minister David Cameron to power with an overall majority in parliament after five years of coalition government. Mr. Cameron’s stewardship of the economy was a central plank of his re-election campaign.
Central banks around the world are grappling with patchy growth and subdued inflation. In the U.S., the Federal Reserve is expected to raise short-term interest rates later this year. The European Central Bank in March embarked on a program of asset purchases aimed at reviving growth in the 19-nation currency union and returning inflation to its close to 2% annual target.
Despite weaker growth ahead, the BOE said it expects annual inflation to rise back to its 2% target by early 2017, provided interest rates in the U.K. rise in line with expectations in financial markets.
Investors currently expect the BOE to raise its benchmark interest rate from a 300-year low of 0.5% in the middle of 2016, according to overnight rates published in the BOE’s report.
Annual inflation is zero following a collapse in the oil price, but officials said they anticipate price-growth will strengthen toward the end of the year.
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