Currently, growth forecasts for Q1 lie in and around 0.43%, according to the FT,
indicating that, despite this recent bout of jitters, the UK economy is expected to maintain a very
similar pace of growth to that experienced in Q4 of 2015.
Annual GDP growth in 2015 was measured at a total of 1.9%,
with quarterly growth averaging 0.5%,
indicating remarkably steady growth, given recent volatility.
However, it is important to remember that 2015 ended on a soft note
with the UK economy relying on its large services sector for the bulk of its growth,
as a slowing global economy hurt demand for British exports.
Good afternoon, ladies and gentlemen.
In February, I concluded that the most resilient component
of the UK economy was the consumer sector.
2016 was kick-started by the great British consumer spending at its fastest pace in 18 months.
Month on month sales rose by 2.3%,
whilst year on year, they experienced a rise of 5.2%.
However, sales released on the 24th of March
may give us a better indication of where we are at, as these will not factor in
temporary factors, such as January discounts.
The fundamentals all appear to be strong.
Household living standards and spending power have risen,
aided by falling unemployment, near zero inflation,
and steady wage growth.
Could I ask another question, please, about the correlation you showed between house prices
and consumption, what do you think is the underlying economics of that, please?
I think the most obvious piece of economics behind the idea of high house prices causing
or inducing acceleration of consumer expenditure is the idea of the strong
positive wealth effect associated with that.
With a large amount of homeowners in the UK, unlike other European countries, such as Germany,
when there are high house prices, you end up having
homeowners feel more confident, more secure about their prospects in the future,
and because homeowners are also consumers, this leads them to consume more, to spend more.
And that's certainly, I think, probably the prima facie explanation, the most obvious one, but there are others.
Also, not only confidence, but
homeowners can actually increase their spending through equity withdrawal, so they can capitalise
on increased house prices and actually take out a loan against the value of their house
because of the increase in value. So that can be a direct way of increasing consumption.
And also, we only considered this this morning, actually. We had a discussion this morning
on how we would try to explain our correlation and we realised that there is a distinct chance
of a third variable here. Increased confidence will increase credit conditions in the economy
and will lead to increased house prices if more are able to take out mortgages,
and it would also increase consumption at the same time.
And so we should have, if we were given further time, we would have -
I mean, statistics are never going to tell you if correlation equals causation,
but we do feel quite confident in the mechanics behind
the processes by which house prices increase consumption, ultimately.
If we had a research department maybe we would have conducted a multiple regression analysis.
Well, all I'd say is that it sounds as though you had this morning the sort of discussions
that the Bank of England's Monetary Policy Committee has.
China also displays significant deflationary risk, with growth expected to slow from 6.8% today
to 6%, forecast by the World Bank for 2017.
This is broadly thought to be part of a managed slowdown, as China re-balances towards
a more sustainable growth model led by domestic consumption.
We were very fortunate to have the chance to ask the Chinese president, Xi Jinping,
the reason for this slowdown. And he said to us that,
"the environment is the most pressing matter, so we are shifting to a slower and more sustainable growth rate."
Perhaps a political statement, but regardless,
I believe this will have a number of effects on UK inflation.
First, as the largest commodity consumer in the world,
a falling growth rate should lead to lower commodity prices.
Second, China is important to UK trade, especially as an import partner.
This slowdown will no doubt reduce the demand for British goods,
worsening the trade deficit further.
Thirdly, a slowdown in China will also have significant impact on both global growth and global confidence.
As one of the main engines of global growth,
the transition from an export-led towards a domestically-driven economy
is having, and will continue to have, a negative effect on economies around the world.
o when you talk to your business advisor, I can't remember his name now, or if you talk to businesses,
is there an explanation for the reluctance to invest?
Because, actually, if you look at the numbers, there does seem to be plenty to invest in.
I think the problem is that people are still under-confident from the financial crisis
and, if they do have the profits, they are actually quite unwilling to use their own money to invest.
They sort of want to keep those profits for safe margins almost.
But then, obviously, when they go to the banks and say, "Please, will you lend us some money?"
Well, they say, "Well, you've got this money. You've got these profits. Why aren't you investing?"
But I think that everyone is more risk-averse so the banks don't want to lend to the SMEs,
I think there's a real problem in the UK economy that there isn't the funds for the SMEs,
so where will our long-run productivity go?
We were speaking to Ian Gooden and he said that
a lot of the companies that he has talked to are more in the computer industry so they're
coming up with software and then if you go to a bank and say,
"Will you loan us some money to develop this new software?"
and they say, "Actually, we can't do that because we can't-"
So there's nothing to loan against.
So there is a lot of problems relating to SMEs.
Also, he said that when companies go to banks to try and get a loan,
they will pitch their idea to someone,
and then that person who they pitched it to pitches it to someone else,
who will then decide if they get a loan. So they can't-
No immediate interaction.
There's someone in the middle that might not get the full idea.
So I think that demonstrates that there is a lot of risk aversion in that sense.
Good morning.
Recently, inflation has risen off the 0% mark,
which it has been fluctuating around, but has remained very low and outside of target.
In both our November and February presentations,
we proposed lowering the base rate by 25 basis points
and maintaining QE at its current level.
Upon reviewing the most recent data, we continue to view this as an appropriate policy measure.
This step is designed to achieve two goals:
Firstly, to combat the near-term deflationary risks we see arising from developments in the global economy
and, secondly, to signal strongly our intent to normalise the inflationary environment.
In addition to lowering the Base Rate, we further propose that a recommendation be made to the government
to raise the UK's permanent inflation target to 4% (+/- 1%)
in order to prevent becoming trapped in a low-growth, low-inflation,
low-interest-rate equilibrium in the long-term.
The Governor has highlighted the long-term risk of becoming trapped in a low-growth, low-inflation,
low-interest-rate equilibrium.
In order to prevent this from happening, we, as a committee, have reached the unanimous decision
to submit a proposal to her Majesty's government to raise the inflation target to 4% (+/- 1%).
In order for this to be effective, it requires a greater degree of cooperation and coordination
between fiscal, financial, prudential, and monetary policy setters in the future.
Specifically, they should collectively aim to combat and to counter
the causes of the very low natural interest rates that are becoming increasingly prevalent in the economy.
Could I ask a couple of questions, please? First of all, if I'm staying on the Phillips curve,
now, we're supposed to have inflation of 2%.
Should I read off your curve that that's likely to mean that unemployment goes up again?
Okay. So, well, we think that the Phillips curve rise could be flat,
so although it does seem like there's some kind of relationship,
we do think that it's flat and it's also flattening, so there's really no trade-off.
And this is due to we think the fact that maybe NAIRU is lower than we actually think.
And that was highlighted by Mark Carney in his January speech at the beginning of the year.
And he said that, because of factors that we have said before,
so increased over-flexibility and underemployment,
NAIRU is actually lower than we think,
so although any kind of shift in employment above that level won't really have any kind of impact.
However also, looking at our Phillips curve, we do say that there are shifts in time.
So although inflation may increase to 2%, this does not necessarily mean,
like right now there, as Serena said, there isn't a trade-off,
but in the future, as the Phillips curve shifts,
we could see a potential increase in unemployment, but that depends on how the Phillips curve is shifting.
But looking at our really flexible labour force, looking at high participation ratios,
and the structure of our economy, we can say that right now we wouldn't say
that unemployment would increase with increasing inflation.