Meeting with the Bank of England

NLB VISITOR DAY 22-9-11 7-9am

Bank of England - East Midlands Agent

Alistair Cunningham

 

An Off the Record meeting

 

Monetary policy

Interest rate changes take one or two years to have an impact.

The country lost 6% of activity during the recession.

There was some growth in 2010 but it is still volatile - weather didn’t help.

Royal Wedding Bank Holiday was a cause for moans and groans in the business world and the tsunami had a huge effect on Toyota, Derby.

People are nervous but growth is slowing through 2011.

Looking at growth in the business sectors:

Retail - tough trading environment but not a blood bath. Increasing foot fall has been the way forward rather than sale sale sale. People spend differently - monthly spending is smooth do not have pay day spikes anymore like we did in 80s. Flat to down.

Manufacturing - furniture activity has fallen. Yellow goods (JCB etc) exports going well and there is growth. Up a bit.

Business services - private sector revenue cuts has meant this area has not been affected to badly at the moment but the pipeline is long. But public sector marketing/advertising has reduced tremendously. Up a bit

Construction - affected by public sector cuts. Flat to level and down possibly as pipeline begins to hit.

 

The economy is expected to be slow through rest of 2011 and pick up into 2012.

As a committee they see 3 Head winds:

1. Household disposal incomes. Have effected slow-down in consumer spending.
2. Fiscal cuts. Is the worst still to come? Or has everything been cut as far as it can go? Construction. More cuts to come as pipeline takes effect.
3. Stock of lending. This is declining. But then businesses don’t want to borrow. They are building up a cash buffer. Difficult to find someone to lend to you money. Banks funding costs are high and they will stay high.

Inflation is above target caused by:

·         VAT rise.

·         Commodity price increases eg oil, cotton.

Businesses chase hard for what little business there is and people compress their margins.

Construction sector - Some even take part in ‘Suicidal Tendering’ in order to secure work and keep their employees busy.

Business services sector - Clients want more for less.

Forecast: Inflation will fall through 2012 without a rise in interest rates.

Questions:

Euro zone – how is BoE dealing with the potential issues to come out of Greece and Spain?

Wait and see and react then. Not expecting it to grow spectacularly. We will never go back to the Nice decade (n.i.c.e. = No Inflation Constant Economy - 2000-2009).

Royal wedding bank holiday and tsunami caused dips - do you see Olympics as helping counter those issues and cause a rise?

Not really was the short answer – don’t bank on it. Seems all downward movement is affected by events but upwards rarely is.

A very interesting meeting.

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