Bank of England (BOE) Governor Andrew Bailey speaks during a news conference on the Monetary Policy Report at the bank’s headquarters in the City of London, Britain, Thursday, May 11, 2023.
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LONDON – Bank of England Governor Andrew Bailey on Thursday defended a shift in the bank’s UK growth forecast, saying its “maximum upgrade” reflected the rapidly changing economic landscape.
At its policy meeting earlier on Thursday, the central bank said it no longer expected Britain to slip into a recession this year.
A few months ago, it predicted the county would face its longest recession on record, then said it was likely to be shallower than first thought.
The bank said on Thursday it expected UK GDP to be flat in the first half of this year, growing by 0.9% by mid-2024 and 0.7% by mid-2025. At its previous meeting in February, it said UK GDP was expected to fall by around 0.75% in the second half of 2022.
“It’s probably the biggest upgrade we’ve ever done,” Bailey told CNBC’s Joumanna Bercetche.
However, he insisted that the overall forecast remains weak.
“The level is still low though, to be honest,” he added.
The bank has been criticized for failing to provide accurate growth forecasts, which could hamper its efforts to combat persistently high inflation.
However, Bailey said the forecasts were based on conditional data, which would often fluctuate significantly.
“They’re conditional on financial market prices, they’re conditional on commodity prices, they’re conditional on government policy. So we change our forecasts as those conditions change,” he said.
“We’ve dealt with all of these things, which is why our forecasts do change and evolve,” he said.
The governor also acknowledged that the bank should do a better job of communicating. It follows a faux pas from BoE chief economist Huw Pill when he said Britons should accept that they are worse off now due to stubbornly high inflation.
“That’s not the right choice of wording,” Bailey said of Peel’s comments.
“How people form expectations about future inflation is very important to us. The wording is very important because I want to emphasize that we are very sensitive to the impact of this on the people of this country,” he continued.
However, he added that he was optimistic that inflation would come down “rapidly” in the coming months.
Earlier Thursday, the Bank of England maintained its pledge to tackle rising prices, raising interest rates by 25 basis points and raising the main bank rate to 4.5%.
Headline consumer prices rose 10.1% in March from a year earlier, driven by high food and energy costs. Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, rose 5.7 percent in the 12 months through March, unchanged from February.
— CNBC’s Elliot Smith contributed to this report.