Bank of England upgrades UK growth forecast as 'things head back to normal'
The Bank of England has upgraded its UK growth forecast for next year and said it expects unemployment to fall more quickly than previously thought.
It forecast GDP to grow by 3.4% this year - unchanged from its previous prediction - but increased the target for next year from 2.7% to 2.9%. However, the forecast for 2016 has fallen from 2.9% to 2.8%.
Meanwhile, the Bank sharply revised down its expectations on unemployment, predicting that the rate would fall to 5.9% in two years. Figures earlier today showed the rate stood at 6.8% in the quarter to March.
A far cry from the Bank's prediction last year that the rate was expected to be above 7% for some years, the latest forecast could add to expectations that interest rates will go up before next year's general election.
Offsetting the pressure for a rate rise, the Bank said inflation will remain at or below its 2% target for the next three years.
Bank of England governor Mark Carney said GDP was close to regaining its pre-crisis level and that 700,000 more people were in work than a year ago.
He said: "The UK economy continues to perform strongly. The economy has started to head back towards normal."
Mr Carney said: "As time has moved on and the recovery has been sustained, the economy has edged closer to the point at which Bank rate will need gradually to rise. The exact timing will inevitably be the subject of considerable speculation and interest."
He said the answer would depend on the progress of the economy and in particular the measure of "slack" or spare capacity and the inflation outlook.
Mr Carney added: "Amidst the excitement, output is close to regaining its pre-crisis level. We should not forget that the economy has only just begun to head back toward normal.
"Securing the recovery is like making it through the qualifying rounds of the World Cup. That is an achievement, not the ultimate goal.
"The real tournament is just beginning and its prize is a strong, sustained and balanced growth."
Mr Carney added: "As we progress we will get to a welcome moment where the economy has headed far enough towards normal that there will be an adjustment in Bank rate."