Inflation Report August 2006

Money and asset prices

Chart 1.1 Cumulative changes in international equity prices since 4 January 2006 (a). Sources: Bloomberg and Thomson Financial Datastream. (a) In local currency terms. (b) Morgan Stanley Capital International (MSCI) index

Chart 1.2 International broad money (a) Sources: Bank of England, Bank of Japan, Board of Governors of the Federal Reserve System and ECB. (a) The monetary aggregates used are: M4 for the United Kingdom; M2 for the United States; M3 for the euro area; and M2 + CDs for Japan.

Chart 1.3 Market implied volatility of the FTSE 100 over the next three months (a) Sources: Bank of England and Euronext.liffe. (a) Three-month implied volatility derived from option prices.

Chart 1.4 Nominal long-term interest rates (a) Sources: Bank of England and Bloomberg. (a) Ten-year instantaneous forward rates.

Chart 1.5 Official Bank rate and one-day forward curves (a) Sources: Bank of England and Bloomberg. (a) Forward rates are interest rates expected to prevail in a future period. They are derived from instruments that settle on the London interbank offered rate (Libor). That includes market rates on short sterling futures, swaps, interbank loans and forward-rate agreements. The forward curves shown in the chart are fifteen-day averages of one-day forward rates. The curves have been adjusted for credit risk.

Chart 1.6 Overseas official and forward interest rates (a) Sources: Bank of England and Bloomberg. (a) These are one-month forward rates. The US, euro-area and Japanese curves have been derived from instruments that settle on dollar Libor, Euribor and yen Libor respectively. These curves have not been adjusted for credit risk. (b) Official rate refers to the Bank of Japan’s target for the uncollateralised overnight call rate.

Chart 1.7 Cumulative changes in effective exchange rate indices since 2 January 2006

Chart 1.8 UK broad money (a) Other financial corporations.

Chart 1.9 Lending available for consumption (a) The sum of mortgage equity withdrawal and consumer credit. (b) The 2006 Q2 outturn for consumer credit is not shown because household income data have not yet been published for that period.

Chart 1.10 Employers’ social contributions (a) Includes National Insurance, pension and other social contributions by employers. (b) Excludes imputed pension contributions by government. The official series starts in 1987.

Tables

Table 1.A Indicators of house price inflation (a) Sources: Bank of England, Halifax, Home Builders Federation (HBF), Nationwide and Royal Institution of Chartered Surveyors (RICS). (a) All series are net percentage balances except the lenders’ indices. Averages of monthly data where relevant. (b) Compared with previous month. These data have been seasonally adjusted by Bank staff. (c) Change during the past three months or expected over the next three months. (d) Average of monthly percentage changes in the Halifax and Nationwide house price indices. Average since 2000 Q3Q4Q1Q2July HBF current balance (b) n.a. RICS current balance (c) n.a. RICS expectations balance (c) n.a. Lenders’ indices (d)

The impact of pension fund deficits on company behaviour

Chart A Distribution of respondents’ pension fund deficits (a) Individual responses have been weighted by turnover.

Chart B Impact of pension deficits on respondents’ past and future business decisions (a) Individual responses have been weighted by turnover.

Chart C Impact of pension deficits on investment by respondents (a) (a) ‘Small’ refers to companies with an annual turnover of up to £50 million; ‘medium’ to companies with annual turnover of between £50 million and £500 million; and ‘large’ to companies with annual turnover in excess of £500 million. Individual responses have been weighted by turnover within the small/medium/large categories.