“Bank staff now expect GDP to fall 0.3% in the second quarter as a whole, weaker than forecast in the May Report,” the Bank of England said in a statement.
“Consumer confidence has fallen further, but other indicators of household spending seem 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,” he said. additional.
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 the other six rejected them.
The UK economy is in a bleak place. GDP contracted 0.3% in April, after a 0.1% drop in March, according to data from the National Statistics Office. Output fell in all three main sectors (services, manufacturing and construction) for the first time since January last year.
George Buckley, chief UK and Europe economist at Nomura, told CNN Business it was “understandable” that the Bank of England decided on a more modest rate hike than its US counterpart.
“The Bank of England [thinks] that high inflation today, by itself, will hurt growth and ultimately reduce future inflation,” Buckley said.
“The bank is dealing with rising inflation, but at the same time with recession risk, so the differences of opinion in the Committee at this time on the scale of adjustment required is understandable,” he added.
— Nicole Goodkind contributed to this report.