The Bank of England has cut back its UK growth forecast for the year in a sign that the weakening pound and stalling income growth is hitting the pockets of UK consumers. The news will be seen as another indicator that uncertainty around the UK’s negotiations to leave the EU will not create a climate conducive to domestic growth for businesses.
With UK consumers becoming less confident, the need for businesses to spread risk and diversify their consumer base will only grow. Exporting opportunities have potentially again been boosted by the falling value of the pound in response to the latest growth forecast, though the weakening pound will also make many businesses’ supply chains more costly as imports become more expensive.
According to the BBC, “the pound fell sharply after the Bank of England's latest Inflation Report was seen as ruling out any rate rises for some time.”
Sterling dropped to $1.288 against the dollar and down 0.4% to 1.1855 euros.
The Bank cut its growth forecast back from the 2.0% prediction made in February to a 1.9% estimate. It has also kept interest rates at 0.25%.
"The slowdown appears to be concentrated in consumer-facing sectors, partly reflecting the impact of sterling's past depreciation on household income and spending," the Bank said in its report.
The Bank did, however, predict that growth could go up again over the next 2 years due to rising income growth – from 2% this year to 3.75% in 2019.
Speaking to BBC Breakfast this morning, our Director General Lesley Batchelor gave cause for optimism for our exporters at least:
“I think we’re holding our own and I’m quite surprised it’s gone as well as it has. It’s been hard for some of the manufacturers that are importing and also the cost of freight as well because of the dollar etc. You know, it’s all been quite challenging but I think exporting is all about challenges.”
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