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Economic Outlook: November 2018. Brian Sloan, Deputy Agent for the North West Sefton Economic Forum, Formby Hall, 7 December 2018. Headlines of MPC Decision. Inflationreport.co.uk. Summary - Growth. Central forecast not much changed from August
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Economic Outlook: November 2018 Brian Sloan, Deputy Agent for the North West Sefton Economic Forum, Formby Hall, 7 December 2018
Headlines of MPC Decision Inflationreport.co.uk 2
Summary - Growth • Central forecast not much changed from August • GDP growth averages 1¾% a year over the forecast period • Net trade (ie a reduction in our deficit) helps UK growth as world GDP grows at above its long-run trend • Business investment also adds to growth • Consumer spending momentum stronger than previously thought
Summary - Inflation • Central forecast also not much changed from August • Impact of external factors (higher energy costs, sterling’s past depreciation) fades over the forecast period) • Domestic inflationary pressures build • Potential supply growth assumed to be only 1½ % a year • Low productivity growth means that pay growth will need to be lower than before the crisis to hit the 2% inflation target
Summary But • Global financial conditions are tightening • UK fiscal policy is shifting from restrictive to more accommodating (not yet included in forecast) • Assumes a smooth transition to ‘the average of a range of potential Brexit outcomes’
Chart 1.2 Growth in world trade and capital goods orders declined in 2018 • Sources: CPB Netherlands Bureau for Economic Policy Analysis, Datastream from Refinitiv, European Central Bank, US Bureau of Labor Statistics, US Census Bureau, World Bank and Bank calculations
Table 1.6 The US dollar has appreciated since the start of 2018 • Sources: Bank of England, China Foreign Exchange Trade System (CFETS), ECB, Federal Reserve, JPMorgan and Bank calculations.
Chart 1.10 Manufacturing activity growth in non-China EMEs has begun to slow, albeit from strong rates Sources: Datastream from Refinitiv, IHS Markit, JPMorgan and Bank calculations.
Chart 2.4 Consumption growth has been supported by lower saving and, more recently, higher income growth
Chart 2.5 Households’ confidence in their own finances has improved over the past year Sources: GfK (research carried out on behalf of the European Commission) and Bank calculations.
Chart 2.6 Growth in consumer credit and lending to businesses has slowed
Chart 2.7 House price inflation has slowed since early 2016 Sources: Halifax house price index by IHS Markit, HM Land Registry, Land and Property Services Northern Ireland, Nationwide, ONS, Registers of Scotland and Bank calculations.
UK Regional house price inflation to August 2018 Sources: Halifax house price index by IHS Markit, HM Land Registry, Land and Property Services Northern Ireland, Nationwide, ONS, Registers of Scotland and Bank calculations.
Chart 2.10 Business investment has been weak, and is expected to have fallen by 0.5% in the year to 2018 Q3 Sources: Bank of England, BCC, CBI, CBI/PwC, ONS and Bank calculations.
Chart 2.12 Survey indicators are consistent with positive export growth but have fallen Sources: Bank of England, BCC, CBI, EEF, IHS Markit, ONS and Bank calculations.
Chart 3.1 The vacancy rate is at a record high Sources: ONS and Bank calculations
Regional Unemployment Change Percentage point change 3 months on 12 months earlier June to August 2017
Chart 4.2 CPI inflation is expected to fall further towards the target in coming months Sources: Bloomberg Finance L.P., Department for Business, Energy and Industrial Strategy, ONS and Bank calculations.
Chart 5.3 CPI inflation projection based on market interest rate expectations, other policy measures as announced
Chart 5.1 GDP projection based on market interest rate expectations, other policy measures as announced
Bank’s EU Withdrawal Scenarios – Published in Response to Treasury Select Committee Request
Brexit and monetary policy • Brexit will influence the appropriate path for interest rates depending on the balance of its effects on demand, supply and the exchange • The monetary policy response will not be automatic and could be in either direction • Current situation is different from the time of the referendum in 2016 • Then there was spare capacity in the economy – now demand and supply are broadly balanced • Inflation in 2016 was significantly below target – now it is above target