markets

BOE's U.K. Upgrades All Come Down to a Stronger Global Economy

  • U.K. central bank sees trade contributing to growth for years
  • Consumer spending to stay weak as Brexit adds uncertainty
Carney speaks on the economy, inflation and interest rates.

The U.K. can be thankful that world growth is building up steam.

Raising its forecasts for the next three years, the Bank of England’s biggest upward revision was to exports. It sees them increasing 3.25 percent this year, better than the 2 percent predicted just three months ago.

That upgrade stands in contrast to the meager 25 basis-point revision to consumer spending and business investment this year, and a cut to the housing-investment prediction.

In its discussion of the outlook, the BOE’s Monetary Policy Committee said U.K. net trade is benefiting from “robust global demand” and the past depreciation of the pound. While business investment was being supported by the low cost of capital and global demand, it “remained restrained by Brexit-related uncertainties.”

The export growth may indicate the start to a rebalancing long craved by policy makers. Carney’s predecessor Mervyn King was calling for a shift to rely less on consumption more than a decade ago.

The National Institute of Economic and Social Research spelled out the U.K.’s position more clearly earlier this week when it raised its outlook. It said a better-than-expected global expansion accounted for about a third of the increase in gross domestic product last year. The resulting boost to trade, at a time when future commerce relationships remain uncertain, was “critical” for the country.

On earnings, the BOE sees growth of 3 percent this year and 3.25 percent in 2019, unchanged from its November forecasts. With inflation forecast to slow, that will mean an end to the decline in real incomes that squeezed consumers in 2017, though the prospects for a strong recovery are low.

Household consumption is set to grow at about half the average over the past five years, “reflecting weak real income growth,” it said.

— With assistance by Zoe Schneeweiss

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