“Bank staff now expect GDP to fall 0.3% in the second quarter as a whole, weaker than expected at the time of the May report,” the Bank of England said in a statement.
“Consumer confidence has continued to decline, but other household spending indicators appear to be holding up. Some business confidence indicators have weakened, although so far they have remained more resilient than consumer confidence indicators and consistent with positive underlying GDP growth,” is in the report. added.
The central bank said three members of its Monetary Policy Committee wanted to raise interest rates by 50 basis points to 1.5% – which would have been the largest rise in 27 years – but were outnumbered by the other six.
The UK economy is in a grim position. GDP shrank 0.3% in April, after falling 0.1% in March, according to data from the Office for National Statistics. Production fell in all three major sectors – services, manufacturing and construction – for the first time since January last year.
George Buckley, chief economist for the UK and Europe at Nomura, told CNN Business it was “understandable” that the Bank of England had decided on a more modest rate hike than its US counterpart.
“The Bank of England” [thinks] that high current inflation in itself will hit growth and ultimately lower inflation going forward,” Buckley said.
“The bank is grappling with rising inflation, but at the same time with the risk of a recession – so it is understandable that the committee is currently divided on the extent of the tightening required,” he added.
† Nicole Goodkind contributed to the reporting.