Inflation ReportFebruary 2016

Demand and output

Chart 2.1 GDP growth was 0.5% in Q4Bank staff’s projections for near-term output growth(a)

Sources: ONS and Bank calculations. (a) Chained-volume measures. GDP is at market prices. (b) The latest backcast, shown to the left of the vertical line, is a judgement about the path for GDP in the mature estimate of the data. The observation for 2016 Q1, to the right of the

vertical line, is consistent with the MPC’s central projection.(c) The magenta diamond shows Bank staff’s central projection for the preliminary estimate of GDP growth for 2015 Q4 at the time of the November Report. The green diamond shows

the current staff projection for the preliminary estimate of GDP growth for 2016 Q1. The bands on either side of the diamonds show uncertainty around those projections based on one root mean squared error of past Bank staff forecasts for quarterly GDP growth made since 2004.

Chart 2.2 Final expenditure does not fully explain the slowing in growthContributions to average quarterly GDP growth by expenditure component(a)

(a) Chained-volume measures.(b) Calculated as a residual. Includes inventories, the alignment adjustment and the statistical discrepancy.(c) As expenditure estimates for Q4 are not yet available, growth rates for 2015 are an average of growth rates in the first three quarters of 2015.

Chart 2.3 Construction, manufacturing and service sector output growth have slowedContributions to average quarterly GVA growth by output sector(a)

(a) Chained-volume measures at basic prices. Contributions may not sum to the total due to rounding. Service industries are defined as ‘consumer-focused’ if the share of their output that is directly consumed exceeds the share of output that is sold to other businesses to be used as intermediate inputs, while the reverse is true for ‘business-focused’ service sectors. Calculated using the United Kingdom Input-Output Analytical Tables 2010. Figures in parentheses are weights in nominal GDP in 2012.

(b) Other services includes: public administration and defence; health services and education.

Chart 2.4 Falling oil prices and a strengthening labour market have supported real income growthContributions to four-quarter growth in real post-tax labour income

(a) Wages and salaries plus mixed income.(b) Measured using the consumption deflator (including non-profit institutions serving households).(c) Net transfers are general government benefits less employees’ National Insurance contributions.(d) Nominal post-tax labour income divided by the consumption deflator (including non-profit institutions serving households).

Chart 2.5 Household saving has been broadly stable recentlyHousehold saving out of available income(a)

(a) Percentage of household post-tax income excluding flows into employment-related pension schemes.

Chart 2.6 Housing investment growth has slowed sharplyHousing investment(a)

(a) Chained-volume measure.

Chart 2.7 Mortgage approvals and housing transactions increased slightly in Q4Mortgage approvals and housing transactions

Sources: Bank of England, HM Revenue and Customs and Bank calculations. (a) Number of residential property transactions for values of £40,000 or above.

Chart 2.8 House price inflation remains robustHouse prices and indicators of house price inflation

Sources: Bank of England, Halifax, Nationwide, Royal Institution of Chartered Surveyors (RICS) and Bank calculations. (a) Swathe includes RICS balances for prices over the past three months, price expectations over the next three months (lagged three months), the new buyer enquiries balance less the

instructions to sell balance (lagged six months) and the sales to stock ratio (lagged one month), scaled to match the mean and variance of three-month on three-month annualised growth in the average of the Halifax and Nationwide measures of house prices since 2000.

(b) House prices are an average of the Halifax and Nationwide measures.

Chart 2.9 Extraction investment has weighed on overall business investment growthContribution to four-quarter business investment growth(a)(b)

(a) Chained-volume measures. Contributions prior to 2012 are indicative estimates.(b) Figures in parentheses are shares in total nominal business investment in 2012.(c) Total business investment, less contributions from the mining and quarrying, oil and gas extraction, utilities, manufacturing and service sectors.

Chart 2.10 Export growth appears stronger than suggested by survey indicatorsExports of goods and survey indicators

Sources: Bank of England, BCC, CBI, Markit/CIPS, ONS and Bank calculations. (a) Includes measures of manufacturing export orders from BCC, CBI and Markit/CIPS, together with scores from the Bank’s Agents for manufacturing output for export, scaled to match

the mean and variance of four-quarter goods export growth since 2000. BCC data are non seasonally adjusted.(b) Chained-volume measure. Data are to 2015 Q3. Goods export data exclude the estimated impact of missing trader intra-community (MTIC) fraud, calculated as nominal MTIC

adjustment, divided by the goods import deflator.

Chart 2.11 Import penetration has picked up Relative import prices and imports relative to import-weighted demand

(a) UK imports as a proportion of import-weighted total expenditure, chained-volume measures. Import-weighted total expenditure is calculated by weighting together household consumption (including non-profit institutions serving households), whole-economy investment (excluding valuables), government spending, inventories (excluding the alignment adjustment) and exports by their respective import intensities, estimated using the United Kingdom Input-Output Analytical Tables 2010. Import and export data have been adjusted to exclude the estimated impact of MTIC fraud.

(b) Import price deflator divided by the market price GDP deflator.

Chart 2.12 The current account deficit was broadly unchanged in Q3UK current account

Tables

Table 2.A Monitoring the MPC’s key judgements

Table 2.B Private sector domestic demand growth was resilient in Q3Expenditure components of demand(a)

(a) Chained-volume measures unless otherwise stated.(b) Includes non-profit institutions serving households.(c) Investment data take account of the transfer of nuclear reactors from the public corporation sector to central government in 2005 Q2.(d) Excludes the alignment adjustment.(e) Percentage point contributions to quarterly growth of real GDP.(f) Includes acquisitions less disposals of valuables.(g) Excluding the impact of missing trader intra-community (MTIC) fraud. Official MTIC-adjusted data are not available for exports, so the headline exports data have been adjusted by an

amount equal to the ONS import adjustment.

Table 2.C Net external finance raised by companies increased in 2015Net finance raised by PNFCs(a)

(a) Includes sterling and foreign currency funds from capital markets and UK monetary financial institutions.(b) Non seasonally adjusted.(c) Includes stand-alone and programme bonds.(d) As component series are not all seasonally adjusted, the total may not equal the sum of its components.(e) Sterling net lending excluding the effects of securitisation. Percentage change on a quarter earlier.

Conditions in credit and financial markets

Chart A The UK long-term real interest rate has declined significantly over the past few decadesUK long-term real interest rate(a)

Sources: Bloomberg and Bank calculations. (a) Ten-year spot index-linked gilt rate. Monthly averages. The last data point is for January 2016 and uses data to 27 January 2016.

Chart B Private sector credit growth is now in line with GDP growthPrivate sector credit growth relative to GDP growth(a)

(a) Four-quarter credit growth minus four-quarter GDP growth. Credit growth measured as M4 and M4 lending (excluding the effects of securitisations) prior to 1998 Q4, and equivalent measures excluding the deposits of, and borrowing by, intermediate other financial corporations thereafter. GDP is at current market prices.

Chart C Consumer credit growth has picked up by more than business or secured household lendingHousehold and corporate lending

(a) Sterling net lending by UK monetary financial institutions (MFIs) and other lenders.(b) Sterling net lending by UK MFIs and other lenders. Consumer credit consists of credit card lending and other unsecured lending (other loans and advances) and excludes student

loans.(c) Sterling net lending by UK MFIs.