Transcript Document

Role of the Bank & the economic outlook
Glynn Jones
Agency for the West Midlands & Oxfordshire
NAVA Conference – 25 September 2014
The FPC
West Midlands & Oxfordshire Agency
House prices continue to rise
West Midlands & Oxfordshire Agency
The share of new mortgages with LTI multiples above 4.5
has risen to a new peak
New mortgages advanced for house purchase by LTI
West Midlands & Oxfordshire Agency
Overview
GDP – output by sector
Indices, 2008Q1 = 100
105
100
95
90
85
80
2005
2006
PNDS
2007
2008
Distribution
2009
2010
2011
Manufacturing
2012
2013
Construction
2014
GDP
West Midlands & Oxfordshire Agency
Growth and inflation outlook little changed from May
GDP
CPI
Based on market interest rate expectations and £375 billion purchased assets
West Midlands & Oxfordshire Agency
But unemployment has fallen far more quickly than expected
West Midlands & Oxfordshire Agency
The MPC expects gradual and limited rate increases
A view broadly shared by markets
West Midlands & Oxfordshire Agency
Bank Rate likely to remain below pre-crisis average for some time
Due to higher credit spreads and global factors
Credit spreads
Global long-term real interest rates
West Midlands & Oxfordshire Agency
Demand
Global annual GDP growth moderating
%
20
15
10
5
0
-5
-10
US
Japan
Euro area
China
India
-15
2005
2007
2009
2011
2013
West Midlands & Oxfordshire Agency
Household consumption growth has been
outpacing income growth
West Midlands & Oxfordshire Agency
Housing market activity has fallen back a little
West Midlands & Oxfordshire Agency
Surveys point to continued strong growth
in business investment
West Midlands & Oxfordshire Agency
More fiscal consolidation to come
West Midlands & Oxfordshire Agency
Supply
Unemployment rate falling so slack reducing…
West Midlands & Oxfordshire Agency
…but wage and productivity growth are weak –
suggesting more slack than expected
Private sector nominal earnings and output per worker
West Midlands & Oxfordshire Agency
Participation much stronger than expected
West Midlands & Oxfordshire Agency
Productivity puzzle intact: partially explained by
mis-measurement and the financial crisis
West Midlands & Oxfordshire Agency
Benign inflation environment
West Midlands & Oxfordshire Agency
Summary - August projections(a)
GDP
CPI
(a) based on market interest rate expectations and £375 billion purchased assets
West Midlands & Oxfordshire Agency
Inflation Report – August 2014
www.bankofengland.co.uk/publications/inflationreport/index.htm
Table 1 Averages of other forecasters’ central
projections(a)
Source: Projections of outside forecasters as of 28 July 2014.
West Midlands & Oxfordshire Agency
Chart A Inflation has fallen more quickly than expected
West Midlands & Oxfordshire Agency
Chart B GDP growth has been stronger than expected
West Midlands & Oxfordshire Agency
Labour costs and recruitment difficulties
Labour costs
•
•
Settlements up modestly on last year
– Fewer pay freezes
– NMW pressure after October
– Recruitment and retention
pressures rising
Other pay elements picking up
– Performance better than expected,
boosting variable pay
– But change in composition or work
forces pushing other way
– Auto Enrolment will increase costs
for small firms
Recruitment difficulties
Score
2
1
0
-1
-2
-3
2008
2009
2010
2011
Business Services
Consumer Services
2012
2013
2014
Construction
Manufacturing
West Midlands & Oxfordshire Agency
Labour market – leading indicators
Vacancies
Salaries of new recruits
Sources: Bank of England, BCC, Income Data Services,
KPMG/REC/Markit, the Labour Research Department, ONS and
XpertHR.
West Midlands & Oxfordshire Agency