Monthly Archives: November 2013

Real business investment grew 1.4 per cent in the third quarter, prompting many City economists such as Howard Archer of IHS Global Insight to welcome the fact that “business investment is finally kicking in”. If so, that is hugely important to the UK economic debate. Investment growth will enable the recovery to rebalance away from squeezed households who cannot easily borrow more and more to support spending for a lot longer, exporters whose prospects depend to a large extent on the still-troubled eurozone, and the government which will continue its austerity drive.

The following five charts about business investment should make you pause for thought and raise quite a few questions about data reliability as highlighted by the Bank of England governor on Tuesday.

Investment in buildings, plant and machinery did not drive Q3 growth

Far from investment being important to the 0.8 per cent real growth and 1.7 per cent nominal growth in the third quarter, this chart shows that the good growth figures were almost entirely generated by household consumption and a build-up of unsold stocks within companies. Investment contributed only 0.1 percentage points to the 0.8 per cent growth. Read more

The Bank of England is a powerful organisation, which rarely hears criticism from insiders or outsiders because economists are quite polite people.

A leading economist I respect sent me these views on the communication of forward guidance, but did not want to be identified. I thought they deserved an airing. So in the style of the secret footballer, here the “secret economist” compares what senior BoE officials say about guidance with what they mean.

What we say … and what we mean

This is the right policy for a recovery … Please forget all that stuff about guidance is the right policy for an economy that is flat-lining.

We have made policy more effective …We can’t explain how. This statement sounds like code for a change in the stance of policy, but we don’t want to re-open that can of worms.

 Read more

I’ve written quite a bit about the effectiveness of the Bank of England’s forward guidance on monetary policy. One reason is that the BoE has been willing to say guidance “makes the exceptionally stimulative monetary stance more effective”, but not by how much. Indeed, the governor and other officials have always — and sometimes embarrassingly –dodged questions about whether the BoE thinks guidance imparts stimulus at all.

There is no easy answer to the question of how much stimulus has forward guidance imparted. That said, I think I have found a reasonable method for reverse engineering the answer to a different question: what effect did the Monetary Policy Committee believe could be attributable to forward guidance? Read more

By Robin Wigglesworth

A slew of economic news and data has come out over the past 24 hours, some good, some bad, and some outright ugly. But if one thing is clear, the economic recovery of advanced economies is far from assured. Here are five highlights, and things to keep in mind.

1: Markets believe the Fed will keep stimulating the economy

Janet Yellen, the nominee for the Federal Reserve chairmanship, will highlight now the US economy is performing “far short” of its potential at her Senate testimony on Thursday, according to prepared remarks released on Wednesday evening. Deutsche Bank’s Jim Reid points out that while the “tones are certainly dovish, it’s impossible to infer precise policy thoughts from her remarks”. That hasn’t stopped financial markets from rallying on the hope that the presumptive new Fed chairwoman will keep pumping money into the global economy for longer than previously expected. Read more

At Wednesday’s Bank of England inflation report, the Monetary Policy Committee took a look at its August economic forecasts and said “what bunch of extreme pessimists produced these?” No one needs to answer that question.

The MPC then revised its growth forecast sharply higher with the consequence that unemployment was expected to fall much quicker, hitting 7 per cent 18 months earlier than it thought in August. But the best news for people in Britain was that in the November forecasts imply the people in charge of interest rates think inflationary pressures are weaker than in August, so more rapid growth and lower unemployment comes without the cost of higher inflation.

In times past, such an inflation report would have been seen as dovish. Even with stronger growth expected, the inflation forecast was revised down so there was less need to tighten monetary policy. Everyone would have understood the meaning. Read more

Emily Cadman

Bank of England governor Mark Carney will be taking questions from the press after the release of the bank’s latest inflation report. All eyes will be focused on any changes to the forward guidance

Rapidly moderating inflation – as measured by the CPI – and falling unemployment mean the bank is facing a far more positive economic backdrop than many expected last quarter.

By Emily Cadman, with economics editor Chris Giles and economics reporter Clare Jones at the Bank of England


The Office for National Statistics has just published October 2013 inflation figures. These show the consumer price inflation rate falling from 2.7 per cent in September to 2.2 per cent last month, a much greater fall than the average of economists’ expectations of a drop to 2.5 per cent. The discredited retail price index, which is still used to uprate index-linked government bonds, rail fares and other utility bills fell from 3.2 per cent in September to 2.6 per cent. The essential news and context comes in the following five charts.

1. Inflation falling faster than Bank of England expected Read more

The well-worn chart below is often taken to show chronic lack of effective demand in the economy. It shows the level of gross domestic product (in red) alongside a trend line from 1997 to 2008 (in blue). Output is now 18 per cent below the previous trend and this purports to signal the failure of the British authorities to stimulate the economy sufficiently over the past five years.

 Read more

Emily Cadman

Mario Draghi

Today the ECB cut its benchmark main refinancing rate to 0.25 per cent.

ECB president Mario Draghi is giving his monthly press conference

Follow the questions and reaction live here with capital markets editor Ralph Atkins and Emily Cadman


Industrial production and manufacturing figures for September were published by the Office for National Statistics this morning. They showed manufacturing picked up in September a little more than the statisticians had expected when they estimated third quarter economic growth, but not enough to trigger a revision to the 0.8 per cent initial growth estimate. The following five charts add some detail and put the figures in context.

1. Manufacturing still has a long way to recover Read more