News Column

Arbuthnot Banking Group -The Bank's latest take on 'forward guidance' and more gloom from the Eurozone

August 18, 2014



ENP Newswire - 18 August 2014

Release date- 18082014 - In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Bank's August Inflation Report, the latest developments in 'forward guidance' and 2014Q2 GDP data for the UK and the Eurozone.

The main findings are:

The Bank's latest forecasts, included in the Inflation Report, were bullish. GDP growth is expected to be 3.5% this year and the unemployment rate to fall to less than 6% by the end of the year. Spare capacity was cut to 1% of GDP. The Bank also halved their wage growth forecast to 1.25% for 2014.

The ONS reported that annual earnings growth had weakened further in 2014Q2 (total earnings were down 0.2%, whilst regular pay was only 0.6% higher), but these figures are vulnerable to compositional changes. Pay settlements have been about 2-21/2%.

Whilst the February version of the Bank's 'forward guidance' (interest rate rises linked to spare capacity and other 'economic developments') is still the official version of 'forward guidance', dovish Governor Carney seemed to suggest that rate decisions should also consider weak wage growth and various 'headwinds' facing the UK economy.

The ONS confirmed that GDP rose by 0.8% in 2014Q4.

Eurozone GDP in 2014Q2 was flat ('stable'), reflecting a 0.2% fall in German GDP, flat French GDP and a 0.2% fall in Italian GDP. There were calls for the ECB to 'do more' to stimulate the Eurozone economy by, for example, embarking on QE.

Ruth Lea said, 'The UK economy is growing above trend and with spare capacity being depleted the MPC should now be raising interest rates. The 0.5% Bank Rate was, rightly, implemented in the depths of the Great Recession in March 2009 as an 'emergency measure'. But it is now time to start normalising rates - by gradual steps.'

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser

07800 608 674, 020 8346 3482, ruthlea@arbuthnot.co.uk

Follow Ruth on Twitter @RuthLeaEcon

David Marshall, Director of Communications

020 7012 2432, 07502 285 835, davidmarshall@arbuthnot.co.uk

Bell Pottinger:

Dan de Belder

020 7337 1548, ddebelder@bell-pottinger.co.uk


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Source: ENP Newswire


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