Britain's economy in 2017 will grow more than originally expected, the Bank of England (BoE) said on Thursday (2 February), allaying fears the impact of the Brexit referendum would hold back economic expansion.
In its latest Inflation Report, the BoE said Britain's gross domestic product (GDP) is forecast to grow 2%, compared with the 1.4% rate it predicted in November.
The BoE also raised its GDP forecast for 2018 to 1.6% from 1.5%, while growth in the following 12 months is expected to hit 1.7%, compared with the initial 1.6% forecast.
"The upgraded outlook over the forecast period reflects the fiscal stimulus announced in the chancellor's autumn statement, firmer momentum in global activity, higher global equity prices and more supportive credit conditions, particularly for households," the BoE said.
The Bank also voted unanimously to leave interest rates on hold at a historic low of 0.25% and to maintain the central bank's asset purchase programme at £435bn ($547.6bn)
Meanwhile, Britain's central bank added it expects inflation to hit its intended 2% target in the current quarter, before growing to 2.7% in early 2018 and 2.6% in early 2019.
In November, the BoE forecast figures of 1.8%, 2.8% and 2.6%, respectively.
The decision to revise the GDP forecast higher was widely expected by analysts and comes after a series of reports have indicated the UK economy appears to be in rude health.
The latest PMI reading for the services sector, which account for around 80% of the UK economy, signalled five consecutive months of growth at the end of 2016, with a particularly sharp uptick in December.
Meanwhile, retail sales in the final quarter of last year rose by 5.9% compared with 2015, contributing to a 0.6% GDP expansion in the last three months of 2016. The labour market has also remained resilient, with the unemployment rate holding stable at an 11-year low of 4.8%.
Neil Wilson, senior market analyst at ETX Capital said the revision was "a touch of humble pie for the Bank", as it has been made abundantly clear that the "economic Armageddon" it expected in the event of Brexit has just not materialised.
"The UK remains the fastest growing G7 economy – not bad for a nation that some think has committed an act of self-mutilation in choosing the leave the EU," he said.
"But the Bank remains correct to highlight the downside risks that yet remain. We are now heading out of the EU with no guarantees on trade – WTO tariffs might be the best we get. No one should doubt the importance of what this means, particularly regards the sterling exchange rate."
Unemployment forecasts have also been revised down, with the unemployment rate expected to be 4.9% this quarter, compared with the 5% predicted three months ago. The rate is expected to hit 5% in early 2018 and in early 2019, compared with November forecasts of 5.5% and 5.6%, respectively.
"Domestic demand has been stronger than expected over the past few months, and there have been relatively few signs of the slowdown in consumer spending that the committee had anticipated following the referendum," the Bank added.
"Nevertheless, continued moderation in pay growth and higher import prices following sterling's depreciation are likely to mean materially weaker household real income growth over the coming few years. As a consequence, real consumer spending is likely to slow."