Inflation and the Economy An off-the-record...
Transcript of Inflation and the Economy An off-the-record...
Inflation and the Economy
An off-the-record presentation
December 2012
Geoff Harding
Deputy Agent
Bank of England Agency for the South West
South West Agency
The official GDP data will continue to bounce up and
down Bank staff estimates of the contributions of special events to quarterly
growth in manufacturing and services output
Sources: ONS and Bank calculations.
South West Agency
The broader outlook - slow growth, below trend
GDP projection based on market interest rate expectations and £375
billion asset purchases
South West Agency
Demand
South West Agency
Borrowing increases, but at a reducing rate Public sector net borrowing
Sources: Office for Budget Responsibility and ONS.
South West Agency
A gradual lessening in the pressure on household
budgets Real household consumption and income(a)
South West Agency
But households continue to save and to pay off debt Household saving ratio(a)
South West Agency
Reasons for expected increase in monthly saving over the next year(a)
Sources: NMG Consulting and Bank calculations.
South West Agency
World economic growth has slowed… World trade and UK exports
Sources: OECD and ONS.
South West Agency
…and UK income from foreign investments has
fallen UK current account
Source:
South West Agency
Investment within the UK remains weak Investment(a)
South West Agency
Supply
South West Agency
Growth in output remains weak… GDP and sectoral output(a)
South West Agency
…but we have seen strong growth in private
employment… Cumulative changes in private sector employment since 2010 Q2(a)
Sources: Labour Force Survey and Bank calculations.
South West Agency
…which is very puzzling! Private sector output and employment
Sources: ONS (including the Labour Force Survey) and Bank calculations.
South West Agency
Private sector unit labour costs(a)
Sources: ONS and Bank calculations.
South West Agency
Private sector labour productivity(a)
South West Agency
Estimates of output per employee by size of business(a)
Sources: Bureau van Dijk and Bank calculations.
South West Agency
Company liquidations in England and Wales and an estimate of loss-
making companies
Sources: Bureau van Dijk, The Insolvency Service and Bank calculations.
South West Agency
Money and credit
South West Agency
Cumulative net corporate bond issuance by
private non-financial corporations over calendar years(a)
Source:
South West Agency
Supply or demand? Loans to PNFCs and households
South West Agency
• Launched July, joint scheme with the Treasury
• Boosts net lending to the real economy – firms and households
• Lowers the cost of finance for banks/building societies
• Set-up period through till January 2014
• 4-year funding to banks at below current market rates
• Participating banks/building societies can borrow up to 5% of their
stock of lending to the real economy as at end June 2012 (£80 bn if
all banks participate)
• 30 participants so far = 80% of stock of lending to UK real economy
Funding for Lending scheme
South West Agency
Sharp falls in banks’ funding costs since the
summer… UK banks’ indicative longer-term funding spreads
Sources: Bank of England, Bloomberg, Markit Group Limited and Bank calculations.
South West Agency
…which is improving credit supply to the real
economy Credit Conditions Survey: changes in credit availability(a)
South West Agency
Whither Bank Rate? Bank Rate and forward market interest rates(a)
Sources: Bank of England and Bloomberg.
South West Agency
Inflation
South West Agency
Staying above target for a little longer CPI inflation projection based on market interest rate expectations
and £375 billion asset purchases
South West Agency
We face the rather unappealing combination of a subdued recovery
with inflation remaining above target for a while. An unfavourable
external environment continues to shape our prospects.
The immediate economic outlook remains a challenging one. Growth
is likely to remain sluggish and inflation above target. The road to
recovery will be long and winding. But there are good reasons to
suppose that we are travelling in the right direction.
Inflation and the Economy
An off-the-record presentation
December 2012
Geoff Harding
Deputy Agent
Bank of England Agency for the South West
South West Agency
Sterling food prices
Sources: Bank of England, ONS, S&P indices, Thomson Reuters Datastream and Bank
calculations.
South West Agency
Inflation and households’ inflation perceptions and expectations one year
ahead
Sources: Bank of England, GfK NOP and ONS.
South West Agency
Averages of other forecasters’ central projections(a)
Source: Projections of outside forecasters as of 1 November 2012.
South West Agency
Projection of the level of GDP based on market interest rate
expectations and £375 billion asset purchases
South West Agency
Likely to remain above target for the first part of the forecast period
Higher than in August – reflects recent outturns & announcement of large
increases in household energy prices.
Further declines in inflation checked by price increases in sectors where market
influences are weak – student tuition fees, domestic gas and electricity prices
are rising faster than wholesale energy prices.
Such factors are pushing up inflation by over 1 percentage point a year, and the
rate of inflation in those sectors influenced more by market pressures would
have to be unusually low for inflation overall to be close to the 2% target.
The Committee judges that inflation is likely to fall back in the second half of
next year, as the impact of short-term pressures wears off and slack bears down
on pay growth.
Towards the second half of the forecast period, the risks to inflation are broadly
balanced around the target.
South West Agency
Conditioning path for Bank Rate implied by forward market interest
rates(a)
South West Agency
Sectoral broad money(a)
South West Agency
Survey indicators of capacity utilisation by sector(a)
Sources: Bank of England, BCC, CBI, CBI/PwC and ONS.