1 Jun 2018

Insight into the Swindon Bank of England breakfast

I attended a very interesting breakfast last month, hosted by MHA Monahans, but presented by Donna Kehoe, the South West agent for the Bank of England. This time she was joined by her new deputy Malindi Myers , who also took part in the presentation.

Donna’s job has two aspect to it:

  • Firstly to gather intelligence from businesses of all sizes and across all sectors from her local region, and then to feed that intelligence back to the bank
  • Secondly to disseminate information on the banks current data and thinking, back to those local businesses.

The purpose of her presentation last month was in fulfilment of that second objective, and in doing so give us some insight into the Bank’s view of our current economic situation.

A few interesting observations:

  • Overall, the world economy is continuing to improve. As we have already seen, the fall in sterling has impacted increased domestic prices. The squeeze in living standards however is starting to ease, as a result of wage growth.

  • Increasing global demand has had a positive impact on trade growth. This is starting to shift towards investment growth rather than trade volumes. To an extent this is reaction to higher wage costs.
  • As regards interest rates, US rates are now increasing, and UK markets are expecting to see base rates at about 1.25% by 2021. Interestingly, the margins achieved by lending institutions are falling for mortgage borrowing, but not so for corporate lending.
  • Although GDF growth slowed in Q1 of 2018, this was thought to be because of the weather. The Bank is waiting to see whether the reduction in the rate of growth is temporary or structural – as they see it – is it weather or climate ?
  • Investment in the UK is still improving although not thought to be where it should be at this stage of the trade cycle. This is thought to be because of Brexit uncertainty.
  • Wage growth is continuing, which should lead to improved living standards, although spending is still fairly reticent: spending in the car market fell sharply in the first quarter and although there was an increase in spending on other consumer durables, this was still at a fairly low ebb.
  • On the supply side, continuing growth capacity is now limited by a tight labour market, and productivity has hardly grown since the start of the financial crisis. The MPC expects supply growth to remain subdued, with very low levels of unemployment – unemployment

is now at its lowest since 1971. This is particularly so in the South West where unemployment may be less than 1% compared with a 4% national average.

  • Inflation is expected to pick up again over the next few months before falling back. This is the impact of increased energy prices working their way through. Inflation was originally expected to eventually reach 2% though it is now thought to reach that level more quickly than that.

  • The path of interest rates is still upwards, with three of so rises predicted over the next two or three years.

All in all, a very interesting and informative talk! Many thanks to Donna and to MHA Monahans.