January 19, 2017: Mark Carney, governor of the Bank of England, said that consumers, who are the main drivers of growth in UK’s economy, are likely to face headwinds in 2017.
“Recently, there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally,” Carney said in London on Monday. However, he warned consumption-led growth “tends to be both slower and less durable” as it eventually overtakes income. He added that this is one of the main factors that would contribute towards the slowing pace of household spending as well as slowing down of the economy.
The bank slashed its growth forecasts for this year to 0.8 per cent in August, in the immediate aftermath of the Brexit vote, as it cut interest rates to a new low of 0.25 per cent.
But in November, it was forced to admit that the outlook was far brighter – and it raised its growth forecasts for 2017 to 1.4 per cent
Reiterating the Monetary Policy Committee’s neutral stance, Carney said interest rates can go up as well as down, and that there are limits to the extent to which inflation above the BOE’s 2 percent target can be tolerated. The response of households to faster inflation, as the UK negotiates its divorce from the EU, will be key, he said.
“How household spending evolves, and the inter-temporal trade-off that households strike, will be important considerations over the next year,” Carney said.