Monday, October 28, 2013

Bank of England - The UK economic outlook

Here are some of the salient points from a speech given by BoE Deputy Governor Charlie Bean, on 22 October 2013:

  • Since the economy troughed in 2009, GDP has risen by a paltry 2% on a cumulative basis. This compares against a growth forecast of 9% at the time
  • Fiscal consolidation in the public sector is going to weigh on growth for some years to come
  • Households are dealing with a past build-up of debt, which may weigh on spending
  • Businesses are reluctant to invest in an uncertain environment
  • Labour productivity has fallen 5% since the crisis began, posing a productivity puzzle (various factors at play).
  • Long term inflation expectations remain well anchored but inflation held persistently above forecast despite weaker than expected output. Indeed, inflation peaked at a whopping 5.2% in September 2011.
  • "We have discovered that we knew even less about the workings of the economy than we thought we did."  

We have seen a few promising economic signs recently but with respect to the bigger picture I think we are firmly entrenched in a low growth environment for some time to come (I am talking here not of the current upswing but of the next 5-10 years). Unless something comes out of left of field, I can't see an easy way out of this one. 

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