The Bank of England dramatically upgrades its forecast for growth, painting a brighter outlook for the UK economy this year.
It is expected that economic output will expand as fast this year as it did last year, there will be lower unemployment and a more modest rise in inflation.
After significant signs that consumers and businesses have shrugged off the Brexit vote, the Bank revised its earlier gloomy forecasts to predict the economy would grow 2% this year – matching 2016’s performance. Before the referendum last year the bank expected the economy to grow by 2.3% this year, however after the vote, it cut the forecast to 0.8%.
Despite a positive outlook for 2016, the Bank still sees the economy slowing in 2018, with an expected growth of 1.6%. It blames an expected slowdown in spending by households as they adjust to higher inflation.
Could it be bad news for savers?
The Bank expects a significant fall in the savings rate over the next three years, to 4% – the lowest rate since records began in the early 1960s. It predicted Britain’s consumers will run down their savings and borrow at a record rate as they adjust to spending growth and weaker income flows. It does however fuel a solid increase in gross domestic product of 2% this year.
The decline in consumer spending power is partly down to higher consumer price inflation, which the Bank forecasts running at 2% this year, slightly higher than its previous forecast of 1.8% made in November.
Much of that inflation is the result of the weaker pound, which is making imported goods more expensive.
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