1. Outlook for UK economy March 2017
Our latest forecasts
Households
The labour market
Exchange rate and prices
Key judgments
Outlook for UK economy March 2017
Mauricio Armellini
@BoENorthEast

2. Our latest forecasts
Households
The labour market
Exchange rate and prices
Key judgments

3. GDP forecast – November 2016

4. GDP forecast – February 2017

5. Why the upgrade? Easier fiscal policy: half of upgrade
In decreasing order of importance:
Easier fiscal policy: half of upgrade
Stronger outlook for global economy: 25% of upgrade
Supportive financial conditions in the UK
Strong household consumption
-Autumn Statement
-USA: easier fiscal policy; improvements in financial conditions and business confidence; employment growth robust.
-Europe: stronger consumer and business confidence. Monetary & fiscal policy supporting further growth.
-Emerging markets: robust growth in China; Brazil and Russia emerging from recession; rises in commodity prices helping others.
-Supportive financial conditions in the UK: low rates for consumers and corporates, cheaper sterling.
-Strong household consumption ahead of coming squeeze in real incomes

6. Unemployment forecast – February 2017

7. CPI inflation forecast – February 2017

8. Market’s expectations for interest rates
(a) The February 2017 and November 2016 curves are estimated using instantaneous forward overnight index swap rates in the fifteen working days to 25 January 2017 and 26 October 2016 respectively.
(b) Upper bound of the target range.
Sources: Bank of England, Bloomberg, European Central Bank (ECB) and Federal Reserve.

9. Market’s expectations for interest rates
(a) The February 2017 and November 2016 curves are estimated using instantaneous forward overnight index swap rates in the fifteen working days to 25 January 2017 and 26 October 2016 respectively.
(b) Upper bound of the target range.
Sources: Bank of England, Bloomberg, European Central Bank (ECB) and Federal Reserve.

10. Market’s expectations for interest rates
(a) The February 2017 and November 2016 curves are estimated using instantaneous forward overnight index swap rates in the fifteen working days to 25 January 2017 and 26 October 2016 respectively.
(b) Upper bound of the target range.
Sources: Bank of England, Bloomberg, European Central Bank (ECB) and Federal Reserve.

11. Our latest forecasts
Households
The labour market
Exchange rate and prices
Key judgments

12. Consumption and real income growth

13. Consumer credit growth

14. Credit and consumption growth
(a) Four-quarter net flow of consumer credit divided by four-quarter nominal household
consumption. Data are non seasonally adjusted sterling net lending by UK MFIs and other
lenders to UK individuals excluding student loans.
(b) Dealership car finance lending is estimated using the change in outstanding stock and it may
therefore reflect breaks in the series. Data are not yet available for 2016 Q4.
Sources: Bank of England, Finance & Leasing Association, ONS and Bank calculations.

15. Our latest forecasts
Households
The labour market
Exchange rate and prices
Key judgments

16. Headline figures

17. Headline figures

18. Wage growth hasn’t picked up as projected…
Why?

19. …because… Low productivity growth → low wage increases
Lower inflation → less pressure on companies to increase wages
-For point 2: recent rise in import costs for companies following depreciation present risk to wage projections in 2 directions: firms could seek to offset those increased costs by pushing down labour costs (wages), or those higher costs could increase inflation and therefore generate upward pressure on wages
-We’ve been making those points for some time…but unemployment remains low and wages haven’t picked up. So now we think that there’s an additional ingredient…
Slack may be higher than previously thought. Equilibrium unemployment rate down from 5% to 4.5%.

20. Our latest forecasts
Households
The labour market
Exchange rate and prices
Key judgments

21. Import price inflation

22. Food CPI and food import prices

23. Contributors to CPI inflation

24. Our latest forecasts
Households
The labour market
Exchange rate and prices
Key judgments

25. Three crucial judgements for forecasts
Cheaper sterling continues to boost consumer prices without affecting inflation expectations
Regular pay growth remains modest, consistent with our updated assessment of slack
Household spending growth slows as real income gains weaken

26. Q&A @BoENorthEast Our latest forecasts Households The labour market
Exchange rate and prices
Key judgments
@BoENorthEast