When the Bank of England changes its forecasts, economists are used to getting an explanation.
So when Governor Mark Carney downgraded the outlook for business investment on Wednesday, they awaited a rationale.
Investment will grow just 2.25 percent this year, not the 6.25 percent projected in February or the 10 percent in November. Or the 11.25 percent in August.
Economists were, for the most part, disappointed.
“I’m puzzled as to why it’s changed,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “When you've had such a big change in such a short space of time, it deserves some explanation.”
Here’s what the Inflation Report said, taking as its starting point the sharp slump in investment to 0.3 percent growth in the third quarter and a 0.9 percent contraction in the fourth:
“These data are volatile and particularly subject to revision. Survey indicators, including reports from the bank’s agents, have remained fairly robust.” It went on: “the weakness is assumed to be temporary and annual investment growth rises above past average rates, reflecting low financing costs and higher demand. Within that, low oil prices are likely to weigh on investment by oil extraction companies.”
And finally: “Overall, business investment growth is expected to be robust in 2015, but weaker than projected at the time of the February Report.”
Oil prices have risen about 18 percent since the results of the previous forecasting round were presented on Feb. 12, and are close to the highest since December.
“It’s come right down, and I’m not sure what they’re getting wrong,” said Liz Martins, an economist at HSBC Bank in London. “I guess what’s different is the political risk. We lost the uncertainty of who will form a government, but we do have the uncertainty about the EU referendum. That’s probably what’s weighing on it,” in addition to the effect on calculations from weakness in the fourth quarter.
Earlier on Thursday, Carney said the prospect of a referendum by 2017 on Britain’s membership of the European Union -- a key plank of Prime Minister David Cameron’s re-election campaign -- hasn’t affected investment intentions so far.
“What they’ve been telling us, and we see this in the statistics, is that they have not yet acted on that uncertainty,” Carney told BBC Radio. “Or to put it another way, they are continuing to invest, they’re continuing to hire.”