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Bank of England member gives upbeat assessment of UK economy

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While Brexit and weakening real incomes may drag on the UK economy, economic growth should be supported by a strong global economy, less household debt and continued low interest rates, says Michael Saunders, a member of the rate-setting committee for the Bank of England.

He believes jobs growth may be stronger than currently expected. He said: “The view of the external consensus is that this decline in unemployment is now probably over, and that unemployment is likely to stabilise or rise slightly this year. But my hunch is that the labour market will probably tighten further this year, with the jobless rate dropping to – and perhaps even below – 4% during 2018.”

He justified this view by saying that the economy and labour demand are likely to hold up better than many expect. He said wider labour market trends were positive, in spite of weaker data more recently. Firms’ hiring intentions are slightly above average and the level of job vacancies is near a record high.

He said households and businesses still expect Brexit to damage the economy over coming years, which is already having some impact on activity, particularly investment and housing. While consumers’ real incomes have been squeezed, he added, inflation has probably peaked.

Saunders said that the economy also continues to be supported by several major positives: “First, global growth is buoyant, with broad-based expansion across the US, EU and Asia, and marked upturns in world trade and investment. All this, plus the extra boost from sterling’s depreciation since 2015, is supporting exports, business confidence and asset prices in the UK.

“Overall corporate and household balance sheets in the UK have improved significantly in recent years, with lower debt levels (relative to income)…Monetary conditions remain supportive, with low interest rates and reasonable credit availability. There is little sign that the recent 25bp hike has triggered an outsized reaction from households, businesses and financial markets.”

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