Transcript Bank of England

Outlook for the Economy
Pamela Wright, Bank of England
“There is a welcome change in
the economic outlook.
Today’s projections are for
growth to be a little stronger
and inflation a little weaker
than we expected 3 months
ago.”
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Modest growth in output going forward
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Continuing the small upward trend seen recently………
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…but the level of output will not be back to prerecession level until well into 2014
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Where is the growth going to come from?
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No further big fall in construction output
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A bit more growth in the rest of the world
Sources: Eurostat, Indian Central Statistical Organisation, Japanese Cabinet
Office, National Bureau of Statistics of China, Thomson Reuters Datastream and
US Bureau of Economic Analysis
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Favourable sterling exchange rates for exporting
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Lending expected to pick up as a result of
Funding for Lending Scheme
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Companies with access to finance invest more
Sources: Dealogic, ONS, Thomson Reuters Datastream and
Bank calculations.
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Private sector productivity improves as demand
recovers
Sources: ONS (including the Labour Force Survey) and Bank calculations.
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Households less fearful about unemployment
Source: Research carried out by GfK NOP on behalf of the
European Commission
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Why only modest growth?
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Household incomes still growing more slowly than
inflation
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Fiscal consolidation continues – at an even pace
Sources: HM Treasury, Institute for Fiscal Studies and Office
for Budget Responsibility.
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EU still weak
Ireland
Belgium
Germany
Austria
Netherlands
Finland
France
Greece*
EA
Portugal
Spain
Italy
n.a.
Q4
Q1
-4
-3.5
-3
-2.5
* Data seasonally adjusted in-house
-2
-1.5
-1
-0.5
0
0.5
Percentage change on a quarter earlier
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Inflation?
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CPI inflation remains above target for next 2 years
Role of regulated & administered
prices
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Direct contribution of energy prices to CPI
inflation
Sources: Bloomberg, Department of Energy and Climate
Change, ONS and Bank calculations.
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US dollar oil and commodity prices easing down
Sources: Bloomberg, S&P indices and Thomson Reuters
Datastream.
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UK consumer food prices
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How will we know whether the economy is ontrack?
Key Judgements of the MPC in putting together their forecast
1: Sustained, but gradual, global recovery results from international
policy initiatives
€ area does
not decline
in 2013 H2
Growth in
China &
EMEs at or
above current
rates
US indicators
weaken in the
near term but
then growth
accelerates
International
& UK bank
funding costs
stable
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How will we know whether the economy is ontrack?
Key Judgements of the MPC in putting together their forecast
2: the consequences of the financial crisis slowly fade, such that
consumer and business spending gradually recover
Sustained
modest
growth in
consumer
spending
Gradual pickup in business
investment
Further small
declines in
cost of credit
to households
& businesses
Steady rise in
 Contraction in
mortgage approvals
lending to business
to ease through 2013
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Number of secured lending approvals
Thousands
140
House purchase
FLS announcement
120
100
Remortgaging
80
Other
60
40
20
0
2006
2007
2008
2009
2010
2011
2012
2013
Steady
rise in
mortgage
approvals 
 Contraction
in lending to
business to
ease through
2013 x
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Changes in quoted mortgage rates since FLS introduced
2yr variable 75
2yr fixed
5 yr fixed
2yr fixed 90
Basis points
600
500
400
300
200
FLS announcement
May-10
Nov-10
May-11
Nov-11
Extension
announcement
May-12
Nov-12
Sources: Bank of England, Bloomberg and Bank calculations
100
0
May-13
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How will we know whether the economy is ontrack?
Key Judgements of the MPC in putting together their forecast
3: the recovery in demand is accompanied by a broadly
corresponding expansion of effective supply
Spare
capacity
indicators still
suggest slack
in companies
Growth in
private sec
employment
slowing but
positive
Flat to gently
rising labour
force
participation
rate
Modest rise in
labour
productivity
growth
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Selected participation and retirement rates by age
Source: ONS (including the Labour Force Survey).
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How will we know whether the economy is ontrack?
Key Judgements of the MPC in putting together their forecast
4: a revival in productivity growth curbs domestic cost pressures,
meaning that inflation gradually returns to target as external
pressures fade
£
Indicators of medium-term inflation expectations continuing to
be consistent with the 2% inflation target
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Little change in indicators of inflation expectations
Per cent
5
Bank NOP 1 year
4
Basix 1 year
3
2
1
Citigroup/YouGov 1 year
0
2006
2007
2008
2009
2010
2011
2012
2013
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How will we know whether the economy is ontrack?
Key Judgements of the MPC in putting together their forecast
4: a revival in productivity growth curbs domestic cost pressures,
meaning that inflation gradually returns to target as external
pressures fade
£
Indicators of medium-term inflation expectations continuing to
be consistent with the 2% inflation target
Surveys of company price expectations not rising substantially
Commodity prices & exchange rate in line with expectations
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Bank Rate expected to remain low for 4 more years
Sources: Bank of England and Bloomberg.
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What to expect next?
Guidance
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