The British economy is performing a lot better than everyone expected. As a result, the Bank of England hopes that current rate of growth will overcome previous forecasts. However, interest rates might still be cut.
The Bank of England’s Monetary Policy Committee recently stated that if the economy needs a boost, the interest rate can be cut below current record levels. This mean that interest rates could hit 01.pc by 2017. This is an unprecedented position when it comes to British interest rates.
Economist predict that the gross domestic product or GDP will grow, but at a slower pace. This is much better than predictions that were made at the time of the referendum.
Further, the inflation report that came out in August indicates near-term economic activity that has been relatively stronger than expected. As a result, the UK’s GDP isn’t expected to slow down too much during the latter part of 2016.
That being said, business spending is still expected to be much slower when compared to consumer spending. This is mainly because companies are delaying investment as there’s still a lot of uncertainty surrounding Brexit.
The near-term outlook is less negative than expected for the housing market. Further, the indicators of consumption have been slightly stronger than predicted.
But mortgage prices have fallen right across the market even though interest rates on savings have dropped much faster than predicted.
So the short-term outlook isn’t all doom and gloom as predicted just a couple of months ago.
Although the short-term picture looks much better than predicted, the long-term picture is still clouded in uncertainty. Whether the Bank of England makes record-breaking cuts to the interest rate will largely depend on the November inflation report.
Experts believe that this is bound to happen and should be set just a little above zero. This will enable banks to pass the lower interest rate cuts to consumers and businesses. So when banks cut down the cost of borrowing for companies, share prices will shoot up.
So when it comes to the UK economy, the bottom line is this. Things aren’t as bad as they could have been, but the worst still may be around the corner. It can even be as early as January 2017 if Britain activates article 50.
If that happens, there is a real possibility that the economy will slow down much further as a result of fear surrounding the terms of a permanent exit from Europe.