“Bank staff now expect GDP to fall by 0.3% in the second quarter as a whole, weaker than anticipated at the time of the May Report,” the Bank of England said in a statement.
“Consumer confidence has fallen further, but other indicators of household spending appear to have held up. Some indicators of business sentiment have weakened, although they have so far remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth,” it added.
The central bank said three members of its Monetary Policy Committee wanted to raise rates by 50 basis points to 1.5% — which would have been the biggest increase in 27 years — but were outvoted by the other six.
The UK economy is in a grim spot. GDP contracted by 0.3% in April, following a 0.1% drop in March, according to data from the Office for National Statistics. Output fell across all three main sectors — services, production and construction — for the first time since January last year.
George Buckley, chief economist for UK and Europe at Nomura, told CNN Business that 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 will, by itself, hit growth and ultimately bring inflation down in the future,” Buckley said.
“The bank is grappling with surging inflation, but at the same time the risk of recession — so it’s understandable the differences of opinion on the Committee right now about the scale of tightening required,” he added.
— Nicole Goodkind contributed reporting.