Bank of England slashes growth forecast as UK faces stagnation
The Bank of England has cut growth forecasts and once again refused to cut interest rates, in the face of near-stagnation as the UK economy grew by only 0.1% in the first quarter - the lowest of any major economy.
The Bank cut growth forecasts for 2018 overall today from 1.8% to 1.4%. That means we could see the lowest growth this year since the recession. The UK is now the slowest growing economy in the OECD, even as the others report a bumper year for growth. The fall in construction was particularly harsh, with a fall of 2.7% - the biggest contraction since 2012.
Mark Carney, the Governor of the Bank of England, was once dubbed the “unreliable boyfriend” by Labour MP Pat McFadden, for frequently hinting at interest rates and failing to follow through. But UK growth in the first quarter of 2018 plummeting to 0.1% - the lowest in five years. Critics blame the government’s bumbling approach to Brexit and the delirious effects of austerity on the economy.
A rate rise would be likely to dampen already low demand, by incentivising saving over borrowing, and therefore cutting investment. When growth is zero or near-zero, normally central banks would cut rates. But at 0.5% - the interest rate is approaching the zero-lower bound - and it has been since 2010. This means that cutting interest rates is unlikely to have any positive effect on demand in the economy. That’s why most economists are calling for an end to austerity and increase in public spending to pick up the slack, in a vindication of Labour’s approach.
In response to the slow growth figures, John McDonnell slammed the government:
“This is the weakest Q1 growth since 2012. It’s clear to everyone except Philip Hammond that our economy is in need of increased investment and working families are struggling with the cost of living and the burden of increasing household debt.
“The next Labour government will end austerity and provide the investment vitally needed to kick-start the economy to deliver rising living standards for the many, not the few.”