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The Bank of England has “learnt” from its pessimistic forecasts for economic growth in the wake of the vote to leave the EU, but has not shifted its long-run outlook on the impact of Brexit for the UK economy, its chief economist has said.
Addressing MPs at the Treasury select committee on Tuesday, Andy Haldane said that the BoE had not “fundamentally” changed its mind on the Brexit impact on the economy.
However, he added that a host of “new news”, including the BoE’s stimulus measures launched in August and a better global economy, had led to a revision of its short-term GDP growth forecasts for 2016 and 2017 (see above).
The BoE has raised its GDP forecasts twice in the last three months. Ahead of the vote, the central bank warned of the risk of a shallow UK recession, predicting 2017 growth would fall to 0.8 per cent. This has now been hiked to 2 per cent in the central bank’s latest estimates released this month.
Mr Haldane said growth had also been supported by a “somewhat strong consumer and housing market”.
“That is a learning curve for us”, said the chief economist who attracted attention earlier this year for comparing economic forecasting during the financial crisis to a Michael Fish weather forecast mistakenly dismissing a hurricane in the south of England.
He added that forecasting errors around the Brexit vote were still nowhere near like those made during the credit crunch and global banking crisis in 2008.
Mr Haldane added that strong consumer spending should not have been a “surprise” after the June vote as rising employment and wages all supported households.
However, he warned “that is now about to change as their incomes will be squeezed” by higher inflation “throttling back spending”.