It’s Not a ‘V’: BofA Cuts U.K. 2021 Growth Forecast to 6.9%
(Bloomberg) -- Bank of America cut its growth forecasts for the U.K., saying a rebound isn’t likely to resemble a ‘V’-shape.
Chief U.K. economist Robert Wood reduced his outlook for gross domestic product for 2021 to show a 6.9% expansion, slower than the 7.3% he previously expected. That followed official data showing second quarter output below the Bank of England’s prediction, reflecting staff and materials shortages.
“GDP growth peaked in March and has slowed almost continuously since,” Wood wrote in a note on Thursday. “The major reopening gains are behind us, and policy turns into a headwind from a tailwind soon.”
The downgrade puts BofA closer to the median estimate of a Bloomberg survey, which sees growth this year at 6.8%.
Wood said the BOE’s outlook that inflation will surge to 4%, double its target, is fanning market expectations for an increase in interest rates in the first half of 2022. Rising unemployment as the government’s furlough scheme is wound down could delay an increase.
“If growth and inflation undershoot BOE forecasts and unemployment overshoots, we suspect the policy prescription would not be ‘hike earlier’,” Wood said. After inflation peaks, it may be “trickier” for BofA to hold its call for a rate hike by May 2022, he said.
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