Inflation Report November 2014 Money and asset prices

Chart 1.1 Market expectations for UK, US and euro-area interest rates have fallen since the August Report International forward interest rates (a) Sources: Bank of England, Bloomberg, European Central Bank (ECB) and Federal Reserve. (a)The August 2014 and November 2014 curves are estimated using instantaneous forward overnight index swap rates in the fifteen working days to 6 August 2014 and 5 November 2014 respectively. (b)Upper bound of the target rate range of 0% to 0.25%.

Chart 1.2 Equity prices fell before recovering somewhat International equity prices (a) Source: Thomson Reuters Datastream. (a)In local currency terms, except MSCI Emerging Markets, which is in US dollar terms.

Chart 1.3 Volatility increased temporarily but remains low by historical standards FTSE 100 short-term implied volatility (a) Source: Bloomberg. (a)Calculated from three-month option prices on the FTSE 100, which reflect the premium that investors are prepared to pay to insure against movements in the index.

Chart 1.4 Sterling depreciated slightly, but remains well above its trough Sterling exchange rates

Chart 1.5 Yields on riskier corporate bonds have increased International corporate bond yields (a) Source: BofA Merrill Lynch Global Research. (a)Investment-grade bond yields are calculated using an index of bonds with a rating of BBB3 or above. High-yield corporate bond yields are calculated using aggregate indices of bonds rated lower than BBB3. Due to monthly index rebalancing, movements in yields at the end of each month might reflect changes in the population of securities within the indices.

Chart 1.6 UK banks’ funding spreads remain low UK banks’ indicative longer-term funding spreads Sources: Bank of England, Bloomberg, Markit Group Limited and Bank calculations. (a)Constant-maturity unweighted average of secondary market spreads to swaps for the major UK lenders’ five-year euro senior unsecured bonds or a suitable proxy. (b)Unweighted average of the five-year senior CDS premia for the major UK lenders. (c)Sterling average of two and three-year spreads on retail bonds, over relevant swap rates. (d)Constant-maturity unweighted average of secondary market spreads to swaps for the major UK lenders’ five-year euro-denominated covered bonds or a suitable proxy.

Chart 1.7 Household deposits continue to grow despite low deposit rates Household deposits and deposit rates (a)Monthly average of UK-resident monetary financial institutions’ (MFIs’) new sterling household deposit rates.

Chart 1.8 House price inflation moderated a little House prices and near-term indicators of house prices (a) Sources: Halifax, Land Registry, Nationwide, ONS, Rightmove.co.uk, Royal Institution of Chartered Surveyors (RICS) and Bank calculations. (a)Includes the RICS expected house price three months ahead net balance, the RICS new buyer enquiries less instructions to sell net balance, the RICS sales to stock ratio and the three months on three months earlier growth rate of the Rightmove index of the average asking price trend. All series have been moved forward by three months. The Rightmove index has been seasonally adjusted by Bank staff. (b)Latest observation is for August (c)Data are for England and Wales. Latest observation is September (d)Latest observation is for October 2014.

Chart 1.9 Approvals for homemovers particularly weak Mortgage approvals by type of borrower Sources: Bank of England, Council of Mortgage Lenders (CML) and Bank calculations. (a)An approximation for the split of Bank of England mortgage approvals for house purchase has been calculated using the share in CML mortgage advances of homemovers, first-time buyers and buy-to-let purchases. CML data are non seasonally adjusted.

Chart 1.10 Mortgage interest rates remain low Average quoted mortgage interest rates (a) (a)Data are non seasonally adjusted. (b)Sterling-only end-month average quoted rates. The Bank’s quoted interest rates series are weighted averages of rates from a sample of banks and building societies with products meeting the specific criteria (see (c)On mortgages with a loan to value ratio of 75%.

Chart 1.11 Household loan growth continues to increase Loans to individuals

Chart 1.12 PNFC lending outside the real estate sector continues to pick up Growth in the stock of lending to the UK real estate sector and other businesses (a) (a)Lending by UK MFIs. Rates of growth in the stock of lending. Non seasonally adjusted. For details on the series included in the swathes see tab ‘Chart 1.1 appendix’, available at (b)From January 2011, data are on the SIC 2007 basis. Changes in the SIC codes have led to some components moving between industries, which may affect growth rates in 2011.

Chart 1.13 PNFC money growth remains relatively strong Sectoral broad money (a) (a)Monthly data unless otherwise specified. (b)Quarterly data. Intermediate other financial corporations (OFCs) are: mortgage and housing credit corporations; non-bank credit grantors; bank holding companies; securitisation special purpose vehicles; and other activities auxiliary to financial intermediation. Sterling deposits arising from transactions between banks or building societies and other financial intermediaries belonging to the same financial group are also excluded, quarterly prior to June 2010 and monthly thereafter. (c)M4 excluding intermediate OFCs, quarterly prior to June 2010 and monthly thereafter.

Tables

Table 1.A Monitoring the MPC’s key judgements

Table 1.B Bond market issuance strong in Q3 Net external finance raised by PNFCs (a) (a)Includes sterling and foreign currency funds. (b)Non seasonally adjusted. (c)Includes stand-alone and programme bonds. (d)As component series are not all seasonally adjusted, the total may not equal the sum of its components. (e)Sterling net lending excluding the effects of securitisations. Percentage change on a quarter earlier.

The fall in long-term interest rates in 2014

Chart A Longer-term interest rates have fallen internationally during 2014 Five-year, five-year forward nominal interest rates (a) Source: Bloomberg. (a)Derived from the Bank’s government liability curves.

Chart B Most of the fall in nominal forward rates can be accounted for by lower forward real rates Contribution to the decline in five-year, five-year forward nominal interest rates since the start of 2014 (a)(b) Sources: Bloomberg and Bank calculations. (a)Change between 31 December 2013 and the fifteen working days to 5 November (b)Derived from the Bank’s government liability curves. The contribution of real rates and implied inflation expectations to the change in nominal rates calculated using inflation swap rates.