Economic Outlook Briefing for CIC Peter Andrews Agency for Greater London Bank of England November...

Economic Outlook

Briefing for CIC

Peter Andrews Agency for Greater London

Bank of England

November 2014

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Overview

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Aug GDP projection, mkt interest rate expectations and £375 bn purchased assets

Nov GDP projection, mkt interest rate expectations and £375 bn purchased assets

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Market expectations for UK, US and euro-area interest rates have fallen since August

Sources: BoE, Bloomberg, ECB and Federal Reserve.

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Chart 2 CPI inflation projection based on market interest rate expectations and £375 billion purchased assets

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Table 5C Key Judgements

• Global growth picks up only gradually following recent weakness, particularly in the Euro area.

• Domestic demand growth is sustained by further declines in private sector saving and a gradual revival in average real incomes.

• A modest recovery in productivity underpins output growth so that the pace at which slack is absorbed slows.

• As import costs stop falling, their drag on inflation wanes, and a pickup in unit labour cost growth gradually returns inflation to the 2% target.

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Demand

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Recovery in expenditure more weighted towards investment

Greater London Agency. Sources: ONS and Bank calculations

Household saving ratio(a)

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Business investment growth driven by the service sector

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PNFC lending outside real estate sector picks up

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Near-term outlook for external demand revised down

Sources: Eurostat, IMF World Economic Outlook Oct 2014, OECD, ONS, Thomson Reuters, Datastream, US Bureau of Economic Analysis and Bank calculations.

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UK current account deficit historically large

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Housing

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Loan to income multiples had risenNew mortgages for house purchase at LTI multiples >= 4.5

Sources: FCA Product Sales Data and Bank calculations.

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House price inflation moderated a little

Sources: Halifax, Land Registry, Nationwide, ONS, Rightmove.co.uk, RICS and BoE calculations.

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RICS survey: regional house prices over past 3 months

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Approvals for home movers weakening

Sources: Bank of England, Council of Mortgage Lenders (CML) and Bank calculations.

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New building is driving housing investment

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Output and supply

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Output growth by sector

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Agents’ scores for output growth

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Unemployment rate projected to fall further

Sources: Labour Force Survey and Bank calculations.

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Employment growth among the lower skilled

Sources: Labour Force Survey and Bank calculations.

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Some slack remains in the labour market

Sources: ONS (including the Labour Force Survey) and Bank calculations.

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Productivity growth(a)

Sources: ONS and Bank calculations.

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Costs and prices

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CPI inflation projected to fall in Q4

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Import price inflation(a)

Sources: ONS and Bank calculations.

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Unit labour costs growth has stopped

Sources: ONS and Bank calculations.

Economic Outlook

Briefing for CIC

Peter Andrews Agency for Greater London

Bank of England

November 2014