UK: Economic outlook still points to ongoing sluggishness - ING

According to James Smith, Developed Markets Economist at ING, when it comes to the Bank of England, the thing that has analysts and investors scratching their heads is the fact that the economic outlook has not changed noticeably in recent months.

Key Quotes

“The Bank has pointed to a tentative pick-up in wage growth of late, but we suspect this may just be the unwinding of some temporary factors that the BoE has previously pointed to, such as the apprenticeship levy and pension changes. With growth still sluggish and cost bases rising for firms via higher import costs, we doubt wages will takeoff from here - or at least not to the degree the Bank forecasts.”

“The household squeeze also still appears to still be hitting consumption, despite a tentative pick-up in retail sales in August. And whilst the real wage squeeze may have reached its worst, the gap between headline inflation and wage growth looks set to stay fairly wide into early next year, keeping pressure on spending.”

“So at this stage, there's certainly a risk that economic and wage growth misses the Bank's forecasts, meaning any steps towards higher rates will be, at least initially, fairly tentative.”