The European Commission cut its forecasts for U.K. economic growth and said the imbalance between domestic and external demand will persist.
It sees gross domestic product rising 2.1 percent this year and next, down from the 2.4 percent and 2.2 percent forecast in November. In a report published in Brussels on Thursday, it said private consumption will continue to drive growth and net trade will act as a drag. The economy grew 2.3 percent last year, the commission estimated.
The commission, the European Union’s executive arm, also said the U.K.’s output gap probably closed last year and will turn positive this year, a sign that domestic cost pressures could build in the economy. Still, with oil prices falling, it lowered its 2016 inflation projection to 0.8 percent from 1.5 percent. The rate will pick up to 1.6 percent in 2017, though there’s a risk low inflation could persist if energy costs decline further, it said.
With consumer-price growth so far below the Bank of England’s 2 percent target, policy makers will probably leave their benchmark interest rate at a record-low 0.5 percent on Thursday. The BOE will also publish its own forecasts alongside the decision.