Inflation Report November 2004

Money and asset prices

Chart 1.1 Bank of England repo rate and two-week forward curves (a) (a) The forward curves have been derived from instruments that settle on the London interbank offered rate (Libor). That includes the market rates on futures, swaps, interbank loans and forward rate agreements, adjusted for credit risk.

Chart 1.2 UK inflation expectations (a) and the oil price Sources: Bank of England and Thomson Financial Datastream. (a) Implied expectations of average RPI inflation three to six years ahead are derived from the difference between yields on nominal and index-linked government bonds. Implied CPI inflation expectations are derived from these RPI inflation expectations and stylised assumptions about expected differences between RPI and CPI inflation in the medium term. In particular, it is assumed that effective mortgage rates change in line with market interest rate expectations; both mortgage debt and housing depreciation grow by 4.5% per year; Council Taxes grow at their average rate since the inception of the MPC; and geometric averaging lowers CPI inflation by 0.5 percentage points relative to RPI inflation.

Chart 1.3 The sterling ERI

Chart 1.4 UK trade balances (a) At current market prices.

Chart 1.5 Equity indices (a) and the spot oil price Sources: Bank of England and Thomson Financial Datastream. (a) In domestic currency terms.

Chart 1.6 The house purchase timeline (a) Sources: Bank of England and DETR Housing Research Report No. 91. (a) All timings are approximate: they are mainly based on DETR research published in 1998, and could have changed since then.

Chart 1.7 The Bank of England’s official interest rate and measures of mortgage rates

Chart 1.8 Take-up of long-maturity mortgages (a) Source: CML. (a) Data include lending for house purchase and remortgaging, and have been interpolated in 1978 and 1992.

Chart 1.9 PNFCs’ financial balance (a) (a) Excluding statistical alignment adjustment. (b) At current factor cost.

Chart 1.10 PNFCs’ total external finance (a) (a) Excluding securitisations. The components do not sum to the total in each quarter because the total has been seasonally adjusted independently. (b) Includes commercial paper. (c) From monetary financial institutions (MFIs).

Chart 1.11 M4 and nominal GDP (a) At market prices. (b) Calculated on a quarterly basis.

Money and asset prices tables

Table 1.A Measures of house price inflation (a) Per cent 2004 Q1Q2JulyAug.Sep.Oct. Short-run measure (b) Halifax Nationwide Twelve-month inflation rate Halifax Nationwide Sources: Bank of England, Halifax and Nationwide. (a) Quarterly data are averages of monthly observations. (b) The annualised percentage change during the latest three months compared with the previous three months.

Table 1.B Housing market indicators (a) Average2004 since 2000Q1Q2JulyAug.Sep. Activity HBF net reservations (b) HBF site visits (b) RICS sales (c) to stocks (d) ratio RICS new buyers enquiries (d) RICS new instructions (d) Mortgage approvals for house purchase (000s) Land transaction returns (000s) (e) Prices HBF house prices (d) RICS house prices (c) RICS price expectations (c) Sources: Bank of England, House Builders Federation (HBF), Inland Revenue and Royal Institution of Chartered Surveyors (RICS). (a) All series are net percentage balances unless otherwise stated. Data for 2004 Q1 and Q2 are averages of monthly data. (b) Compared with a year ago. (c) During the past three months/expected over the next three months. (d) Compared with the previous month. (e) The number of transactions in England and Wales registered with the Land Registry. These include some commercial property transactions, and so may give a misleading picture of the residential property market. Before the start of 2004, the series was called particulars delivered and included fewer commercial property transactions.

Table 1.C Lending to individuals Q1Q2Q3Q4Q1Q2Q3 Percentage changes on a year earlier Unsecured lending Secured lending Flow as a percentage of household income Mortgage equity withdrawal n.a.

Table 1.D Monetary aggregates Percentage changes on a year earlier Q4Q1Q2Q3Oct. Notes and coin M0 (a) M4 (b) n.a. M4 excluding OFCs (c) n.a. (a) M0 is a narrow measure of money, consisting of notes and coin and bankers’ operational balances held at the Bank of England. (b) M4 is a broad monetary aggregate. Its principal components are the UK private sector’s holdings of sterling notes and coin, and its holdings of sterling deposits (including repos) with UK MFIs. (c) Other financial corporations.

Table 1.E Sectoral monetary aggregates Percentage changes on a year earlier Q3Q4Q1Q2Q3 Households' M4 deposits PNFCs' M4 deposits Households' Divisia PNFCs' Divisia