- Ben Broadbent, Deputy Governor at Bank of England
Bank of England Deputy Governor Ben Broadbent said that productivity remained weak in the UK in the second quarter and there are modest signs of productivity pick-up in the economy, which should consequently result in levels of real pay rising gradually. The relationship between wage growth and productivity is important to inflation forecasting at the BoE. Broadbent also added disinflationary trends have been keeping consumer prices subdued recently and that those trends are partly domestic and partly come from overseas. He also reiterated the Bank of England's guidance that when the interest rate begins to increase, the process will be very slow and gradual and that the interest rate will not reach the pre-crisis level. Broadbent noted that the lower inflation forecast for 2015 is mostly linked to commodity and import prices.
The BoE cut its near-term inflation projections, but stressed that it expects inflation to return to the central bank's official target by the end of the three-year forecast period. The latest data showed inflation has fallen unexpectedly fast to the lowest level in five years of 1.2%, and the BoE see the gauge falling to 1% by the first quarter of 2015. The BoE said it expects the British economy to expand 3.5% in 2014, but projects growth will slow in 2015 and 2016. It revised downwards its forecast for annual growth in 2015 to 2.9% from 3.1% in August and its outlook for 2016 to 2.6% from 2.8%.
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