Bank of England in dramatic upgrade of UK growth forecasts

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BoE governor Mark Carney said he wanted central bankers' "15 minutes of fame" to be over (Source: Getty)

Bank of England governor Mark Carney dramatically revised up growth forecasts today, while dismissing fears of banks leaving the UK after Brexit.

The Bank now predicts no slowdown over the course of this year. GDP will climb two per cent, according to the Bank’s latest forecasts, the same rate as growth in 2016.

The upgrade to growth prospects comes after strong consumer spending wrong-footed the Bank in the aftermath of the Brexit vote, with little effect on the UK economy from the EU referendum, aside from the marked decline in the value of sterling.

Read more: Carney claims Bank of England stimulus saved 250,000 jobs being lost

The Bank’s prediction of UK growth immediately after the EU referendum was slashed to only 0.8 per cent for this year, but since then it has steadily moved its forecast upwards: first to 1.4 per cent at the rate-setting Monetary Policy Committee’s (MPC) November meeting, followed by another substantial upgrade yesterday.

Meanwhile, Carney gave short shrift to suggestions the UK financial services sector would disappear to the continent.

At a press conference following the meeting, he pointed to a long list of advantages to keeping operations in the City, and said any move of jobs to the EU would be a “very, very complicated exercise” with “huge operational” and “huge financial” risks for the firms involved.

Read more: The City's importance to Europe helps the PM

“The one jurisdiction that is going to have capacity [after Brexit] is the UK,” said Carney, saying authorities would aim to “smooth” the transition.

Mark Boleat, policy chairman at the City of London Corporation, added: “Whatever the deal, I am confident the UK will remain the world’s leading financial centre”.

A stronger growth outlook, along with high inflation, could prompt the Bank to tighten monetary policy faster than previously thought – and minutes from the MPC revealed some members of the committee were reaching the “limits” of tolerance of higher inflation.

Read more: Even top EU officials believe it will lose out in bad deal for City

Simon Ward, chief economist at Henderson Global Investors, said: “If the inflation numbers do surprise to the upside there will be some members who will put their heads above the parapet.”

Lars Christensen, the economist founder of Markets and Money Advisory, agreed pressure will increase for a rate rise.

Read more: Hold: City A.M.'s Shadow MPC votes for the BoE to keep rates steady

He said: “Should Carney have been slightly more hawkish? Yes.”

Steve Baker, a Conservative MP who stridently backed Brexit, said: “I'm delighted Project Fear has, as expected, turned out to be quite wrong about the immediate impact of the vote.

"If the Bank wishes to take credit for this result, I wonder why they did not plan for it before the vote,” he said. “Let's hope they aren't now blowing dangerous bubbles in asset markets.”