Economic Prospects - Construction Industry Council -...
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![Page 1: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/1.jpg)
Economic Prospects Presentation to CIC March 2014
Peter Andrews
Agency for Greater London
Bank of England
![Page 2: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/2.jpg)
Agency for Greater London
Overview and Further Guidance
![Page 3: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/3.jpg)
Agency for Greater London
Feb 2014 GDP projection: market interest rate expectations and
£375 bn purchased assets
![Page 4: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/4.jpg)
Agency for Greater London
Feb 2014 CPI inflation proj: market interest rate expectations and
£375 bn purchased assets
![Page 5: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/5.jpg)
Agency for Greater London
Feb 2014 unemployment proj: market interest rate
expectations and £375 bn purchased assets
![Page 6: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/6.jpg)
Agency for Greater London
Further Guidance
• Spare capacity [of] 1-1½% of GDP, concentrated in the labour market.
There remains scope to absorb spare capacity further before raising
Bank Rate.
• Even when the economy has returned to normal levels of capacity and inflation is close to target, the appropriate level of Bank Rate is likely to
be materially below the 5% [average level] prior to the recession.
• Given the headwinds weighing on the recovery … when Bank Rate does increase, it is expected to do so only very gradually.
• … The MPC intends to maintain the stock of purchased assets [QE],
including re-investing … maturing gilts …, at least until Bank Rate has
been raised from … 0.5%
![Page 7: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/7.jpg)
Agency for Greater London
Section 1: Money, credit and financial stability
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Agency for Greater London
Changes since 2007 Q3 in indicators of household
and company credit spreads
Sources: BoE, BDRC Continental SME Finance Monitor, Bloomberg, BofA Merrill Lynch Global
Research, used with permission, British Household Panel Survey, DBIS and Bank calculations.
![Page 9: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/9.jpg)
Agency for Greater London
% of new mortgages taken out at different LTVs
. Sources: FCA Product Sales Data and Bank calculations
![Page 10: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/10.jpg)
Agency for Greater London
(FSR) Mortgage lending has remained subdued Sterling mortgage lending to UK households
Source: Bank of England.
![Page 11: Economic Prospects - Construction Industry Council - Homecic.org.uk/admin/resources/peter-andrews-bank-of-england.pdf · Economic Prospects Presentation to CIC March 2014 Peter Andrews](https://reader031.fdocuments.us/reader031/viewer/2022030505/5ab2a3677f8b9ac66c8d8946/html5/thumbnails/11.jpg)
Agency for Greater London
FSR High LTI ratios more common Share of new mortgages for house purchase with LTI>4.5(a)
Sources: FCA Product Sales Data and Bank calculations.
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Agency for Greater London
More than half FTBs have taken out mortgages > 25 years Mean mortgage term for first-time buyers by LTI
Sources: FCA Product Sales Data and Bank calculations.
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Agency for Greater London
Tools for Mitigating Risks from Housing (1)
ACTIONS IN TRAIN
• March 2013 recommendations to raise bank capital
• 2014 Bank stress test
• Mortgage Market Review Implementation
ADDITIONAL STEPS
• Capital relief on new household lending ending
• FLS incentive for household lending ended
• Guidance on interest rate stress tests
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Agency for Greater London
Tools for Mitigating Risks from Housing (2)
POTENTIAL TOOLS
• Recommendations on underwriting standards
• Rec’s on HMG Help to Buy Scheme
• Rec’s on bank capital requirements on residential lending
• Rec’s on countercyclical capital buffer
• Rec’s on LTVs, LTIs, debt/income ratios, mortgages of a
particular type
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Agency for Greater London
Sections 2 and 3: Demand, Output and Supply
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Agency for Greater London
Contributions to average quarterly GDP growth
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Agency for Greater London
Household saving ratio
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Agency for Greater London
Household debt to income and income gearing ratios
Source: Research carried out by GfK NOP on behalf of the European Commission .
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Agency for Greater London
International GDP growth
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Agency for Greater London
Contributions to four-quarter private sector
housing investment growth
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Agency for Greater London
Business investment and surveys of investment intentions
Sources: Bank of England, BCC, CBI, CBI/Pw C, ONS and Bank calculations.
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Agency for Greater London
GDP and sectoral output
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Agency for Greater London
Manufacturing, business services and construction output
Source: Agents’ National Summary of Business Conditions, M arch 2014
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Agency for Greater London
Bank staff projection for headline LFS unemployment
Sources: Labour Force Survey and Bank calculations.
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Agency for Greater London
Selected indicators of labour market slack
Sources: ONS (including the LFS) and Bank calculations. Differences in number of
standard deviations between current value and 1992-2007 average.
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Agency for Greater London
Labour productivity
Sources: ONS (including the Labour Force Survey).
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Agency for Greater London
Section 4: Costs and prices
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Agency for Greater London
Contributions to change in annual CPI inflation since June 2013
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Economic Prospects Presentation to CIC March 2014
Peter Andrews
Agency for Greater London
Bank of England