25 Apr 2016
UK: A later BoE ‘lift-off’ – Goldman Sachs
Andrew Benito, Research Analyst at Goldman Sachs, notes that the UK economy lost momentum in 2016Q1 and while that owes partly to the effects of EU referendum-related uncertainties, underlying momentum also appears to have softened.
Key Quotes
“The UK’s trend, or supply-side, performance disappointed at the end of last year, and nominal GDP growth weakened in parallel.
In the past, we have been at the optimistic end of views on the UK’s supply-side performance. But we have shifted our view relative to one or two years ago, and are now somewhat less optimistic.
Incorporating the latest conjunctural and supply-side data, we lower our GDP growth forecasts to 2.1%yoy in both 2016 and 2017, implying downward revisions of 0.2pp and 0.1pp, respectively. Behind this reassessment is the weaker outlook for UK labour productivity, which we have been incorporating into our forecasts over the past year.
Lower trend growth has implications for monetary policy. These work through various channels on both the supply and demand sides of the economy, and can be summarised by changes in the so-called ‘neutral rate’ of interest. We present our new, lower estimates of the neutral rate and push back the expected timing of ‘lift-off’ for Bank Rate from 2016Q4 to 2017Q2.”
Key Quotes
“The UK’s trend, or supply-side, performance disappointed at the end of last year, and nominal GDP growth weakened in parallel.
In the past, we have been at the optimistic end of views on the UK’s supply-side performance. But we have shifted our view relative to one or two years ago, and are now somewhat less optimistic.
Incorporating the latest conjunctural and supply-side data, we lower our GDP growth forecasts to 2.1%yoy in both 2016 and 2017, implying downward revisions of 0.2pp and 0.1pp, respectively. Behind this reassessment is the weaker outlook for UK labour productivity, which we have been incorporating into our forecasts over the past year.
Lower trend growth has implications for monetary policy. These work through various channels on both the supply and demand sides of the economy, and can be summarised by changes in the so-called ‘neutral rate’ of interest. We present our new, lower estimates of the neutral rate and push back the expected timing of ‘lift-off’ for Bank Rate from 2016Q4 to 2017Q2.”