Role of the Bank & the economic outlook Glynn Jones Agency for the West Midlands & Oxfordshire NAVA Conference – 25 September 2014

Role of the Bank & the economic outlook

Glynn Jones

Agency for the West Midlands & Oxfordshire

NAVA Conference – 25 September 2014

West Midlands & Oxfordshire Agency

The FPC


House prices continue to rise


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

Overview


GDP – output by sector

80

85

90

95

100

105

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PNDS Distribution Manufacturing Construction GDP

Indices, 2008Q1 = 100


Growth and inflation outlook little changed from May

GDP CPI

Based on market interest rate expectations and £375 billion purchased assets


But unemployment has fallen far more quickly than expected


The MPC expects gradual and limited rate increases

A view broadly shared by markets


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

Demand


-15

-10

-5

0

5

10

15

20

2005 2007 2009 2011 2013

US Japan Euro area China India

Global annual GDP growth moderating%


Household consumption growth has been outpacing income growth


Housing market activity has fallen back a little


Surveys point to continued strong growth in business investment


More fiscal consolidation to come

Supply


Unemployment rate falling so slack reducing…


…but wage and productivity growth are weak – suggesting more slack than expected

Private sector nominal earnings and output per worker


Participation much stronger than expected


Productivity puzzle intact: partially explained by mis-measurement and the financial crisis


Benign inflation environment


Summary - August projections(a)

GDP CPI

(a) based on market interest rate expectations and £375 billion purchased assets

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.


Chart A Inflation has fallen more quickly than expected


Chart B GDP growth has been stronger than expected


Labour costs and recruitment difficulties

Labour costs Recruitment difficulties

• 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


Labour market – leading indicators

400.0

450.0

500.0

550.0

600.0

650.0

700.0

750.0

2007 2009 2011 2013

Vacancies Salaries of new recruits

Sources: Bank of England, BCC, Income Data Services, KPMG/REC/Markit, the Labour Research Department, ONS and

XpertHR.

Documents

Role of the Bank & the economic outlook Glynn Jones Agency for the West Midlands & Oxfordshire NAVA Conference – 25 September 2014