Inflation Report, May 2017

Our quarterly Inflation Report sets out the economic analysis and inflation projections that the Monetary Policy Committee uses to make its interest rate decisions.
Published on 11 May 2017

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Global economic and financial market developments

Indicators point to continued solid global GDP growth in the near term, and equity prices have risen further. Probably reflecting changing perceptions among investors over the risks to growth, market interest rates have fluctuated in many advanced economies, and they have fallen in the United Kingdom. The sustainability of current rates of global GDP growth in the medium term is likely to depend on a recovery in productivity growth in many advanced economies.

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Demand and output

Output growth slowed to 0.3% in the preliminary estimate for Q1. That was probably driven by slower household spending growth, which is projected to remain weak over 2017 as higher import prices weigh on households’ purchasing power. Business investment fell in 2016 but most surveys point to a modest pickup in investment growth over 2017. The depreciation of sterling and strength in global demand have supported net trade and should continue to do so.

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Supply and the labour market

Wage growth has remained modest in recent months, and employment growth has been subdued. While unemployment has continued to fall, a little slack is judged to remain in the economy. And although productivity growth picked up in 2016, it is expected to remain subdued over 2017. Consistent with this, wage growth is projected to remain modest in the near term, before recovering further ahead.

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Costs and prices

CPI inflation was 2.3% in March, having been below the 2% target over much of the past three years. Inflation is expected to have risen further since then, reflecting the continued pass-through of the past fall in the sterling exchange rate to consumer prices. The outlook for inflation will depend on how firms respond to those rising imported costs given domestic cost pressures, the strength of demand and inflation expectations. Inflation expectations have risen from recent lows and are judged to be broadly consistent with the MPC’s 2% target.

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Prospects for inflation

Inflation has risen above the 2% target as the falls in the sterling exchange rate since late 2015 have begun to feed through to consumer prices. Quarterly GDP growth has slowed, in part reflecting the impact of lower real income growth on household consumption. Through its effects on costs, the fall in sterling is likely to keep inflation above the 2% target throughout the next three years. Where inflation settles once that upward pressure fades will depend on domestic price pressures. Conditional on current market interest rates, which suggest only one 25 basis point rate rise over the next three years, those domestic cost pressures are judged likely to be building towards the end of the forecast period.

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The Bank of England's press conference following our May 2017 Inflation Report.

PDF Governor's opening remarks  PDF Press conference transcript 

Data from the May 2017 Inflation Report

including conditioning assumptions, MPC key judgements and indicative projections and other forecasters' projections

Other Chart slides and data     ZIP file 

Fan charts

PDF Fan charts  Excel Current fan chart data 

May 2017 projections for CPI and GDP based on market interest rate expectations


February 2017 projections for CPI and GDP based on market interest rate expectations


Other Inflation Reports

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