The Bank of England (BoE) has downgraded its predictions for inflation and economic growth in Q2, as the prospects for the UK economy remain "clouded by Brexit uncertainty".
In its May Inflation Report, the BoE revised its projected GDP growth expectations for the second quarter of 2018 down from the February estimate of 1.8% to 1.4%, while predicting inflation will fall to 2.4%, rather than 2.7% as previously forecast.
The UK's Consumer Prices Index (CPI) fell yo 2.5% in March, the lowest rate in a year, and although the Office for National Statistics is yet to publish data for April, the Bank's Monetary Policy Committee voted 7-2 to keep interest rates at 0.5%, anticipating inflation would fall back to its target of 2% more quickly than anticipated.
The Inflation Report added inflation had fallen back "more rapidly than expected" at its February meeting, with "pass-through of the past depreciation of sterling to import prices" is "somewhat smaller than previously thought".
However, it noted "regular pay growth has picked up, broadly as expected three months ago, and there are continuing signs that domestic inflationary pressures are building gradually."
On growth, the BoE said "very little spare capacity remains in the economy", which grew only 0.1% in the first quarter, down from 0.4% in the fourth quarter of 2017, hampered by poor weather.
However, it said growth is "likely to be revised up a little over time" with the labour market remaining "robust".
Speaking at the a press conference upon the release of the report, governor of the BoE Mark Carney added: "The underlying pace of growth remains more resilient than headline data suggests."
However, Carney also noted that the "economic outlook for the UK remains clouded by Brexit uncertainty", despite an agreement on a transition deal between the country and the EU being welcome.
He added: "As negotiations progress this year, the medium time economic climate will become more clear."
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