BOE Pessimistic on Productivity Gains, Rate Increase Seen in Mid-2016

Paul Hollingsworth, UK Economist at Capital Economics, says the Bank of England has become more pessimistic about the productivity potential of the UK economy. The quarterly inflation reported released by the BOE shows a decline in both productivity and economic growth forecasts. Hollingsworth says UK firms have been hiring more workers but paying them less money, which has weighed on productivity gains. He says the BOE expects productivity will improve, but at a slower pace than previously projected. Hollingsworth says domestic demand in the UK looks strong, and that the BOE will stick to its timetable of raising rates in mid-2016, but says the subsequent pace of tightening will slow.