The MPCs Policy Dilemma Charles Bean Deputy Governor ABI Economics - PowerPoint PPT Presentation

The MPC’s Policy Dilemma Charles Bean Deputy Governor ABI Economics and Research Conference , London 03 March 2011 1

Chart 1: Output after banking crises Chart 1: Output after banking crises Percent of pre ‐ crisis trend; mean 10th ‐ 90th percentile difference from year t difference from year t = ‐ 1 1 Interquartile range 20 Estimated mean path 10 10 UK 0 ‐ 10 ‐ 20 ‐ 30 ‐ 40 ‐ 50 ‐ 1 0 1 2 3 4 5 6 7 Distance in years from the first year of crisis Distance in years from the first year of crisis Source: IMF and Bank calculations. 2 (a) Sample of 88 banking crises. Output per capita relative to trend measured from the 10 years before the crisis to 3 years before.

Chart 2: GDP projection Chart 2: GDP projection Source: February 2011 Inflation Report . 3

Chart 3: Selected primary commodity prices Chart 3: Selected primary commodity prices Source: February 2011 Inflation Report . 4

Chart 4: Income elasticity of oil and GDP Chart 4: Income elasticity of oil and GDP Percentage point growth in GDP, 2010 10 Developing 8 8 Asia Asia Latin 6 America Oil l exporters 4 Rest of World 2 Advanced economies 0 0 0.05 0.1 0.15 Estimated income elasticity of demand Sources: IEA World Energy Outlook, 2006 and IMF. Income elasticities of demand are short ‐ run estimates based on annual data from 1979 to 2005. 5

Chart 5: Oil demand and supply Chart 5: Oil demand and supply Millions of b barrels per day l d Total demand 100 Forecast Total production 95 95 T t l Total production capacity d ti it 90 85 80 75 70 1996 2001 2006 2011 Source: Cambridge Energy Research Associates. 6

Chart 6: Sterling effective exchange rate Chart 6: Sterling effective exchange rate Index 100 = 2005 110.0 105.0 100 0 100.0 95.0 £ERI 90.0 90 0 Within period average + ‐ 2 standard deviation 85.0 80 0 80.0 75.0 70.0 90 94 98 02 06 10 7

Chart 7: Gauging import price pass ‐ through Chart 7: Gauging import price pass ‐ through UK goods ex VAT/energy vs €A goods ex energy (RHS) UK goods ex VAT/energy vs €A goods ex energy (RHS) Percentage Percentage Percentage Percentage points points UK goods ex ‐ energy vs UK services (LHS) 1 4 3 0 2 ‐ 1 1 1 ‐ 2 0 ‐ 3 ‐ 1 ‐ 2 ‐ 4 ‐ 3 20% 15% ‐ 5 25% app app dep dep ‐ 4 4 d dep ‐ 6 ‐ 5 ‐ 7 ‐ 6 92 94 96 98 00 02 04 06 08 10 8

Chart 8: Contribution of import prices to CPI inflation Source: February 2011 Inflation Report . 9

Chart 9: Contribution of VAT, energy and import prices to CPI inflation Source: February 2011 Inflation Report . 10

Chart 10: CPI inflation projection Chart 10: CPI inflation projection Source: February 2011 Inflation Report . 11

Chart 11: Short ‐ term inflation expectations p Source: February 2011 Inflation Report .

Chart 12: Longer ‐ term inflation expectations Source: February 2011 Inflation Report .

The MPC’s Policy Dilemma The MPC s Policy Dilemma THE END THE END www bankofengland co uk www.bankofengland.co.uk 14