Bank of England reverses from ‘catastrophic’ scenario

Bank of England Governor Andrew Bailey is expected to make ‘u-turn’ statements next week following his ‘grossly exaggerated’ forecasts for the UK economy’s 2023 outlook.

The Bank of England will publish its latest quarterly Monetary Policy Report on Thursday, setting out the projections used by interest rate policymakers to set interest rates.

Bailey had warned in November that the country was at the beginning of a record-long recession and a process that could leave 1 million workers unemployed. However, according to information from a senior fund manager ahead of next week’s update, Bailey will step back from these comments and signal a ‘relatively improved outlook’.

On the subject, Toscafund chief economist Savvas Savouri said:

“The central bank’s grossly exaggerated expectations for unemployment and inflation in the UK were the cause of the dire GDP forecasts it published in its Monetary Policy Reports of August and November 2022. We can expect Bailey to explain that the UK is still facing a recession, but a shorter and milder one than in his New Year forecasts last year. We expect the economy to have a ‘softer landing’ and the duration of the recession to be halved compared to initial forecasts.

But in a sign of senior economists’ scepticism about Bailey’s performance, Savouri said: “The bank’s misjudgements will no doubt continue.”

Philip Shaw, chief economist at financial services firm Investec, is another expert who expects Bailey to move away from his ‘gloomy’ forecasts. “One of the things that is likely to feature prominently in the expected new statement will be the Bank’s prediction that the recession, which it had previously said it expected to last two years, will not last that long,” he said.

“While this would partly point to a slightly less gloomy economic picture, it would also reflect a reduction in the yield curve on which the projections are based.”

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