The Bank of England’s Forecast is a Mess – Here’s Why

Let’s talk about what just happened with the Bank of England’s latest interest rate decision—because, honestly, it’s a bit of a dog's dinner.

The Bank of England just cut interest rates by 0.25%, yet its latest economic forecasts make little sense. The Monetary Policy Committee (MPC) has slashed growth projections, raised inflation expectations, and adjusted export forecasts without clear justification. These contradictions aren’t being questioned—but they should be.

The Headline Takeaways: Mixed Signals

So, here’s what happened:

• The Bank cut interest rates by 0.25%—which, on its own, is great news and should support growth.
• But at the same time, they halved their growth forecast for 2025 to 0.75% and raised their inflation projection to 3.5%.
• Their biggest change? A sudden downgrade in export expectations—but they didn’t even mention this in their press conference.
  

The media narrative suggests that this means “higher inflation for longer” and “weaker growth ahead.” But if you actually look at the numbers, the story doesn’t add up.

The Forecast Breakdown

The export puzzle

The Bank now thinks UK exports will shrink in 2025. Three months ago, they said exports would grow by 2.25%. Now, they’re saying exports will shrink by 0.75%. That’s a 3% swing in three months, with no obvious explanation.

• The pound has been weaker recently (which usually helps exports).
• There’s been no major shock to our biggest trading partners.
• No one at the MPC even mentioned this shift in their update.
  

This is a critical change in their economic outlook, yet it’s been glossed over.

Inflation Forecast

The Bank now says inflation will peak at 3.7% in Q3. Their reasoning? Higher energy prices and cost-of-living factors. But…

• They already knew about upcoming tax changes (bus fares, private school VAT, etc.)
• They already knew about expected increases in utility bills.
• None of this is new information.
  

So what exactly changed between November and now? Again, no clear answer.

Employment & Pay Growth

Here’s where things get really weird.

• The Bank says employment will rise and businesses will pay people more.
• But at the same time, they say the economy will slow down and businesses will make less money.
  

So… companies are hiring more people, paying them higher wages, while also producing less? I’ve analysed businesses for 40 years, and I’ve never seen a CEO say, “Let’s hire more staff, pay them more, and make less money.”

What’s Missing?

• Government spending – The Chancellor announced significant public investment that should boost GDP by 0.75% in 2025. The Bank’s projections don’t seem to factor this in.
• Consumer resilience – Lower rates and wage growth should drive spending and investment, counteracting some of the predicted slowdown.

What This Means for Investors

• Interest rates will keep coming down. This rate cut won’t be the last—I expect 3 more this year.‍
• Growth will be stronger than they predict. The combination of lower rates, public spending, and wage growth means we’ll likely beat their 0.75% GDP forecast.‍
• Inflation may not hit 3.7%. The number seems inflated (pun intended), and I’d bet it comes in well below that.

Final Thoughts

The Bank’s latest outlook relies on flawed assumptions and ignores key factors. Policymakers and commentators may be misreading the data, but over time, the reality will emerge.

The real question is: how long will it take for the Bank to admit they got this one wrong?