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

Economic Prospects Presentation to CIC March 2014

Peter Andrews

Agency for Greater London

Bank of England


Overview and Further Guidance


Feb 2014 GDP projection: market interest rate expectations and

£375 bn purchased assets


Feb 2014 CPI inflation proj: market interest rate expectations and

£375 bn purchased assets


Feb 2014 unemployment proj: market interest rate

expectations and £375 bn purchased assets


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%


Section 1: Money, credit and financial stability


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.


% of new mortgages taken out at different LTVs

. Sources: FCA Product Sales Data and Bank calculations


(FSR) Mortgage lending has remained subdued Sterling mortgage lending to UK households

Source: Bank of England.


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.


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.


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


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


Sections 2 and 3: Demand, Output and Supply


Contributions to average quarterly GDP growth


Household saving ratio


Household debt to income and income gearing ratios

Source: Research carried out by GfK NOP on behalf of the European Commission .


International GDP growth


Contributions to four-quarter private sector

housing investment growth


Business investment and surveys of investment intentions

Sources: Bank of England, BCC, CBI, CBI/Pw C, ONS and Bank calculations.


GDP and sectoral output


Manufacturing, business services and construction output

Source: Agents’ National Summary of Business Conditions, M arch 2014


Bank staff projection for headline LFS unemployment

Sources: Labour Force Survey and Bank calculations.


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.


Labour productivity

Sources: ONS (including the Labour Force Survey).


Section 4: Costs and prices


Contributions to change in annual CPI inflation since June 2013

Economic Prospects Presentation to CIC March 2014

Peter Andrews


Bank of England

Documents

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