British economic growth forecast calls for bank rate rise

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IANS | 12 Oct, 2017
The British economic growth rate is estimated at a slight increase in comparison with the second quarter, which will bolster the argument for the central bank the Bank of England (BOE) to raise the bank rate, a leading economic think-tank has said.

The British economic growth is estimated to expand 0.4 percent in the three months to September, edged slightly higher than the second quarter when the economy increased by 0.3 percent, London-based National Institute of Economic and Social Research (NIESR) said on Wednesday, Xinhua news agency reported.

"The construction sector is not doing so well but services and production are doing better. Retail sales are quite strong," said Amit Kara, head of UK macroeconomic forecasting at NIESR.

"In August last year the Bank of England injected three stimulus measures into the economy, the bank rate cut was one. We prescribe a reversal of just one of those three stimuli," Kara told Xinhua.

The August 2016 moves by the BOE had extended its quantitative easing program, offered greater liquidity to banks and lowered the bank rate to a record low of 0.25 percent with a 25 basis points cut.

The continued growth in the British economy and the almost complete take-up of slack in the economy are key points which Kara said will influence policy makers on the BOE's Monetary Policy Committee (MPC) when it meets at the beginning of November.

Kara said: "The economy is not falling off a cliff. What we are seeing is evidence of companies delaying investment spending, so it is becoming more and more evident that the productive capacity might suffer.

"So, on one side there is a better growth picture, but on the other the productive capacity of the economy is not growing as quickly as one would hope which means that spare capacity is diminishing quickly. Unemployment is down to 4.3 percent. Putting all that together would point to persistently high inflation and that would imply some correction in the bank rate."

The BOE itself has been preparing the ground for a rate rise, with governor Mark Carney saying that a rise would come sooner than markets expected, and the MPC saying in the last minutes of its meeting that a rise could be expected in "a matter of months".

NIESR figures showed Britain's GDP in the three months to the end of September up 0.1 percent from the June-July three-month growth rate of 0.3 percent.