Download Section 2: demand and output

Inflation Report
August 2016
Demand and output
Chart 2.1 Uncertainty has continued to rise
Range of uncertainty measures
Sources: Bloomberg, Consensus Economics, Dow Jones Factiva, GfK (research on behalf of the European Commission), Thomson Reuters Datastream and Bank calculations.
(a) Range includes: the average standard deviation of monthly Consensus Economics forecasts for GDP growth in the current and next year ahead, seasonally adjusted by Bank staff;
the number of media reports citing uncertainty in four national broadsheet newspapers; survey responses of households to questions relating to their personal financial situation and
unemployment expectations; and the three-month implied volatilities for the FTSE 100 and sterling ERI — realised volatilities have been used prior to April 1992 and September 2001
respectively. Media and implied volatilities data for July are based on daily data up to 27 July. A higher number indicates greater uncertainty.
(b) The first principal component extracted from the set of indicators.
Chart 2.2 Investment intentions have generally weakened
since 2015
Survey measures of investment intentions(a)
Sources: Bank of England, BCC, CBI, CBI/PwC, Deloitte, EEF, Markit/CIPS and Bank calculations.
(a) Net percentage balance of respondents reporting that they expect to increase investment over the next twelve months, unless otherwise stated. Agents, BCC and CBI measures
weight together sectoral surveys using shares in real business investment. CIPS and EEF measures correspond to the manufacturing sector only. BCC and Deloitte data are
non seasonally adjusted. The diamonds show the available post-referendum data.
(b) Net percentage balance of monthly increases in new orders to investment goods manufacturers.
(c) Data available from 2010 Q3. The 2016 Q2 Deloitte CFO Survey was conducted during 28 June to 11 July.
Chart 2.3 CRE transactions fell in 2016 H1
UK CRE transactions(a)
Sources: The Property Archive and Bank calculations.
(a) Data are non seasonally adjusted.
Chart 2.4 Housing transactions remain subdued following a
spike in March
Mortgage approvals for house purchase and housing transactions
Sources: Bank of England and HM Revenue and Customs.
(a) Number of residential property transactions for values of £40,000 or above.
Chart 2.5 Forward-looking housing market indicators have
deteriorated in recent months
RICS housing market indicators
Source: Royal Institution of Chartered Surveyors.
(a) Net percentage balance of respondents reporting that they expect prices to rise over the next three months.
Chart 2.6 Falls in property transactions have been
accompanied by lower house building in the past
Contributions to four-quarter private sector housing investment growth(a)
(a) Chained-volume measure.
Chart 2.7 Consumer confidence has fallen
Measures of consumer confidence and unemployment expectations
Source: GfK (research carried out on behalf of the European Commission).
(a) Net balance of respondents reporting that they expect their personal financial situation or the general economic situation to improve over the next twelve months.
(b) Net balance of respondents reporting that, in view of the general economic situation, now is the right time for people to make major purchases such as furniture or electrical goods.
(c) Net balance of respondents expecting that the number of people unemployed will rise over the next twelve months.
Chart 2.8 Consumption growth has been closely correlated
with house price growth over the past
Household consumption and house prices
Sources: Halifax/Markit, Nationwide, ONS and Bank calculations.
(a) House prices are an average of the Halifax and Nationwide measures. Nationwide house price data have been seasonally adjusted by Bank staff.
(b) Chained-volume measure. Includes non-profit institutions serving households. Data available up to 2016 Q1.
Chart 2.9 Household interest rates remain at historically
low levels
Household deposit and lending interest rates(a)
(a) Sterling-only end-month quoted rates, unless otherwise stated. The Bank’s interest rate series are weighted average rates from a sample of banks and building societies with products
meeting the specific criteria (see www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/household_int.aspx). Data are non seasonally adjusted.
(b) Average monthly effective rate.
Chart 2.10 The wider current account deficit since mid-2011
has mainly been due to a lower primary income balance
UK current account
Chart 2.11 Output growth was 0.6% in Q2
Contributions to average quarterly GVA growth by sector(a)
(a) Chained-volume measures at basic prices. Contributions may not sum to the total due to rounding. Service industries are defined as ‘consumer-focused’ if the share of their output
that is directly consumed exceeds the share of output that is sold to other businesses to be used as intermediate inputs, while the reverse is true for ‘business-focused’ service sectors.
Calculated using the United Kingdom Input-Output Analytical Tables 2010. Figures in parentheses are weights in nominal GDP in 2013.
(b) Other services includes: public administration and defence; health services and education.
(c) Other production includes: utilities; extraction and agriculture.
Chart 2.12 The Markit/CIPS survey output and expectations
indices fell significantly in July
Survey indicators of output growth and expected output growth(a)
Sources: Markit/CIPS and Bank calculations.
(a) Produced by weighting together balances for services, manufacturing and construction using their shares in nominal GDP in 2013.
(b) Net percentage of companies saying that output (manufacturing and construction) or business activity (services) increased over the month.
(c) Net percentage of companies reporting that they expect business activity to rise over the next twelve months (services and construction) or that new orders have increased over the
month (manufacturing).
Chart 2.13 GDP growth is projected to slow in 2016 Q3
Output growth and Bank staff’s near-term projection(a)
Sources: ONS and Bank calculations.
(a) Chained-volume measures. GDP is at market prices.
(b) The latest backcast, shown to the left of the vertical line, is a judgement about the path for GDP in the mature estimate of the data. The observation for 2016 Q3, to the right of the
vertical line, is consistent with the MPC’s central projection.
(c) The magenta diamond shows Bank staff’s central projection for the preliminary estimate of GDP growth in 2016 Q2 at the time of the May Report. The green diamond shows the
current staff projection for GDP growth in 2016 Q3. The bands on either side of the diamonds show uncertainty around those projections based on one root mean squared error of
past Bank staff forecasts for quarterly GDP growth made since 2004.
Tables
Table 2.A Monitoring the MPC’s key judgements
Table 2.B Business investment fell, while household
consumption growth picked up in Q1
Expenditure components of demand(a)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Chained-volume measures unless otherwise stated.
Includes non-profit institutions serving households.
Investment data take account of the transfer of nuclear reactors from the public corporation sector to central government in 2005 Q2.
Excludes the alignment adjustment.
Percentage point contributions to quarterly growth of real GDP.
Includes acquisitions less disposals of valuables.
Excluding the impact of missing trader intra-community (MTIC) fraud.
Table 2.C The amount of net external finance raised by
companies continued to rise in 2016 Q2
Net external finance raised by private non-financial corporations(a)
(a)
(b)
(c)
(d)
Includes sterling and foreign currency funds from UK monetary financial institutions and capital markets.
Non seasonally adjusted.
Includes stand-alone and programme bonds.
As component series are not all seasonally adjusted, the total may not equal the sum of its components.
Agents’ survey on the impact on businesses
of the vote to leave the European Union
Table 1 Negative effects are expected on business activity
over the next year
Survey responses on the impact of the vote to leave the EU on business
(a) Results are weighted by employment within the companies, and then re-weighted by sectoral employment shares in aggregate ONS data.
(b) When calculating the net balance of responses, half weight is given to those responding slightly increase or slightly reduce, and full weight is given to those that have responded
substantially increase or substantially reduce.
Chart A Only manufacturers expected a positive effect on
turnover; upward effects are expected on consumer prices
Balance of survey responses for turnover and prices by sector
Chart B Negative effects on hiring and investment are
expected across all sectors
Balance of survey responses for capital spending and hiring activity
by sector
Revisions to the National Accounts
Chart A GDP growth has slowed since 2014
GDP(a)
(a) Chained-volume measures at market prices.
Chart B The estimated saving ratio now appears to have
been broadly flat since 2013
Revisions to household income, consumption and the saving ratio(a)
(a) Includes non-profit institutions serving households.
(b) Contributions to the total revision in the saving ratio.
(c) Percentages of household post-tax income.
Chart C Revisions have reduced the size of the household
financial deficit over the recent past
Financial balances by sector
(a) Includes non-profit institutions serving households.
(b) Excludes public corporations.