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Economic Outlook Peter Andrews Agent for Greater London, Bank of England Construction Industry Council 23 May 2012 Prospects for activity and inflation Agency for Greater London MAY GDP projection; mkt interest rate expect’ns and £325 bn asset purchases FEB GDP projection; mkt interest rate expect’ns and £325 bn asset purchases Agency for Greater London MAY CPI inflation projection; mkt interest rate expect’ns and £325 bn asset purchases FEB CPI inflation projection; mkt interest rate expect’ns and £325 bn asset purchases Agency for Greater London Risks/issues • Euro area: extreme outcome excluded, but impact of threat on asset prices, confidence and activity included • Consumption and real incomes • Productivity • Costs, prices and margins (special survey) Agency for Greater London Money, credit and asset prices Agency for Greater London Sterling exchange rates Agency for Greater London Chart 1.9 Public term issuance by the major UK lenders Agency for Greater London Corporate credit availability by firm size(a) Agency for Greater London Commercial real estate credit availability(a) Agency for Greater London New Bank Rate tracker mortgage rate, Bank Rate and an estimate of banks’ marginal funding cost Agency for Greater London Nationwide house prices: annual changes to 2012 Q1 Agency for Greater London Demand Agency for Greater London UK goods exports and surveys of export orders Agency for Greater London UK import penetration and relative import prices(a) Agency for Greater London Household consumption and real income Agency for Greater London Household saving ratio Agency for Greater London Business investment to GDP ratio(a) Agency for Greater London Cyclically-adjusted primary deficit Agency for Greater London Output and supply Agency for Greater London Output in 2012 Q1 compared with a quarter earlier and a year earlier Agency for Greater London ‘Normal’ seasonal shut-down periods during winter months Agency for Greater London Shut down periods over the most recent winter Agency for Greater London Public and private sector employment Agency for Greater London Whole-economy and sectoral labour productivity(a) (a) Output per hour. (b) Continuations of pre-recession trends calculated by projecting forward labour productivity from 2008 Q2 using the average quarterly growth rate between 1997 Q2 and 2008 Q1. Agency for Greater London Survey indicators of capacity utilisation by sector Agency for Greater London Why is productivity weak? Candidate stories • Labour hoarding: retain skills and anticipate recovery. Helped by bank forbearance • Tighter credit conditions: shortage of working capital, lack of finance for new/dynamic firms • Low investment and some failures/capital scrapping • Fall in hours worked → less learning by doing Agency for Greater London Services labour productivity growth by subsector(a) (a) Output per hour. Subsectors are ordered by the difference between 1998–2007 average productivity growth and 2008–2011 Q3 average productivity growth. The number in parentheses is each sector’s nominal share in 2008 services value added. Shares do not sum to 100 due to rounding. Agency for Greater London Costs and prices Agency for Greater London CPI, RPI and RPIX inflation Agency for Greater London Contributions to CPI inflation(a) Agency for Greater London Contributions to private sector unit labour costs Agency for Greater London Corporate profit share (excl financial corporations and oil) Agency for Greater London Economic Outlook Peter Andrews Agent for Greater London, Bank of England Construction Industry Council 23 May 2012
