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BANK OF ENGLAND UPDATE – AUGUST 2022
August 9, 2022
BANK OF ENGLAND COMMITTED TO GETTING INFLATION BACK TO 2% TARGET – NO IFS, NO BUTS Lai Wah Co, Bank of England Deputy Agent for Greater London, writes… “The rate of inflation – the speed at which consumer prices are rising – was 9.4% in June, well above the 2% target the Government has set for the Bank of England. The Bank expects inflation to peak at just over 13% later this year and to remain very high during most of 2023. The biggest reason for this is higher energy prices, especially wholesale gas prices. Those have more than doubled over the past 3 months, due to Russia restricting supplies to Europe. This will feed through to higher energy prices for companies and households in the coming months, with another significant increase in the energy price cap expected in October. The prices of goods bought from overseas have also risen. This is because consumer demand for goods increased during the pandemic and, at the same time, supply chain problems made it more expensive for companies to import goods. Alongside these global events, changes in the UK economy are also pushing inflation higher. Unemployment is low and fewer people are looking for work compared to before the pandemic. Something I hear regularly from businesses I speak to here in Greater London is that they are having to increase wages because they are struggling to find and hold on to enough employees. Companies are increasing the prices of the goods and services they sell to help them cover all of these higher costs. As wages are not increasing by as much as inflation, spending power is falling. And this will lead to a slowing in growth in the UK economy. The Bank’s Monetary Policy Committee (MPC) expects the UK economy to go into recession – meaning the economy will fall in size – from late 2022 for a little over a year. And GDP growth is expected to remain weak for some time after. The MPC expects inflation to start to decline from next year, assuming that energy costs don’t rise further still, and that high prices don’t set off a cycle of wage and price increases that cause inflation to become more persistent. The MPC knows the sharp increases in the cost of living are very difficult for many people, especially the less well off. Again, this is a message I hear clearly from members of the public at our Citizens’ Panels and in discussions with charity contacts here in Greater London. But the fall in living standards would be worse still, if inflation becomes more persistent, and stays high for even longer. That is why the MPC took strong action at their recent meeting, increasing interest rates from 1.25% to 1.75%. This will help to bring inflation back to the 2% target and reduce the risk it could become more persistent. As always, the MPC will continue to make interest rate decisions each time they meet depending on how the economy and inflation are evolving. And they are determined to bring inflation back to target. In the words of the Bank’s Governor, Andrew Bailey, “there are no ifs or buts in our commitment to the 2% inflation target. That’s our job, and that’s what we will do.” As well as controlling inflation, the Bank of England plays an important role in issuing banknotes. Here, a significant milestone is approaching. After 30 September 2022, paper banknotes will stop being accepted as legal tender. Although the Bank now issues polymer versions of each denomination of banknote (£5, £10, £20, £50), some paper £20 and £50 notes remain in circulation, so we encourage people to use these, or deposit them at their banks and participating Post Offices. Scottish paper £20 and £50 notes issued by Clydesdale Bank, Royal Bank of Scotland and Bank of Scotland will also be withdrawn after 30 September 2022.”...
BANK OF ENGLAND UPDATE – MAY 2022
May 16, 2022
BANK OF ENGLAND ACTS TO GET INFLATION DOWN Lai Wah Co, Bank of England Deputy Agent for Greater London, writes… “You probably don’t need the Bank of England to tell you that prices have been rising sharply. The annual rate of inflation—how much the things that people buy have gone up in price over the past year—was 7% in March. That is clearly some way above the 2% target for inflation that the Government has set for the Bank of England. Here’s why inflation is so high and how we are going to get it back down to target. People have been buying more goods as Covid restrictions have eased in the UK and in most other countries. That higher demand has pushed up on prices. At the same time, there have been supply issues, with many businesses having problems getting hold of enough goods to sell. For example, recent lockdowns have cut production in China—a major source of the world’s supply of raw materials and finished goods. And many of the contacts I speak to at businesses here in Greater London report that their shipping costs have become very expensive over the past couple of years because the pandemic disrupted the normal flow of freight ships around the world. These and other supply problems have all caused goods prices to rise, especially for goods coming into the UK from abroad. Even more strikingly, big increases in oil and gas prices have pushed up the costs of transport, heating homes and offices, and powering factories. The impact of Russia’s invasion of Ukraine on oil and gas prices means there could be a further rise in the energy-price cap in October. Taking all these things together, we expect inflation to rise further—to around 10% later this year. With prices going up much faster than pay, the cost of living is a very big problem for very many people. I know from speaking to my contacts at local charities that high inflation is hitting poorer households the hardest. The Bank is taking action to ensure inflation gets back down to target. This will reduce the cost-of living pressure on households and support businesses to invest and create jobs. We can’t do anything about the supply problems or the higher energy prices that are currently pushing up inflation. But we do have ways to get inflation down over the next few years—mainly by using interest rates. Higher interest rates make it more expensive for people to borrow money to spend and encourage them to save, so they tend to spend less. And when people spend less, prices tend to rise more slowly. The Bank’s Monetary Policy Committee (MPC) have raised Bank Rate—the rate that influences many other interest rates in the UK—from 0.1% to 0.25% in December, to 0.5% in February, and then to 0.75% in March. This month the MPC raised Bank Rate to 1%, and they said they may need to raise it further in the coming months. Higher interest rates will, over time, reduce inflationary pressure in the economy. And it’s unlikely that the prices of oil, gas, and imported goods will continue to rise as rapidly as they have. We also don’t think that the demand for goods will continue to rise as fast, partly because the higher cost of living will reduce the amount of money people have to spend. Some of the supply problems that businesses are facing are likely to ease too. All told, we expect inflation to begin to fall next year and return to the 2% target in around two years’ time. With the help of our contacts in Greater London and across the UK, I and the rest of the Bank’s agents will make sure that the MPC have all the information they need to make the right decisions and get inflation down.”...
BANK OF ENGLAND UPDATE – FEBRUARY 2022
February 11, 2022
BANK OF ENGLAND ACTING ON INFLATION Lai Wah Co, Bank of England Deputy Agent for Greater London, writes… “The Bank of England’s Monetary Policy Committee (MPC) raised Bank Rate from 0.25% to 0.50% on 4 February. And they said that further modest rises in Bank Rate were likely over the coming months. The MPC judged that a rise in Bank Rate, which followed a rise from 0.10% to 0.25% in December 2021, was necessary to bring inflation back to our 2% target. Inflation is currently at 5.4%. The sharp rise in energy prices over the past year is one of the main reasons for this. The price of oil has almost doubled over the past year, and the price of gas is almost five times higher than it was a year ago, bringing higher petrol prices and bigger electricity bills for households, and higher costs for businesses, in Greater London and the rest of the UK. These effects are likely to continue pushing costs and prices up in the coming months, especially when the energy price cap is raised in April. Higher prices for goods that we buy from abroad have also played a big role in the rise in inflation. Across the world, the pandemic has meant people have been spending more on goods compared with services than they would usually. On top of that, because of shortages of materials, some businesses have struggled to supply certain goods. Consequently, goods prices have generally risen. For example, I’ve heard from contacts at local car dealerships in Greater London that shortages of computer chips have caused the waiting lists for new cars to lengthen a lot. As a result, the price of the second-hand cars that they can supply have risen. While much of the rise in UK inflation has come from higher energy and goods prices, some upward pressure on businesses’ costs has also been coming from within the UK jobs market. The number of people out of work is going down, and the unemployment rate is now only slightly higher than it was before the start of the pandemic. Businesses are coming under a lot of pressure to pay more to get and keep staff. My contacts have been reporting particular difficulties in getting enough staff, for example to work in restaurants and hotels, or with digital and sustainability skills. A survey of contacts recently carried out by me and my fellow Agents showed that businesses expect to increase pay by almost 5%, on average, this year. This growing evidence of inflationary pressures in the UK economy is why the MPC has decided to raise Bank Rate. In the latest Monetary Policy Report, the MPC’s forecast put inflation at just over 7% in the spring, then starting to fall back towards our 2% target. Inflation is expected to be close to 2% in around two years’ time. Energy prices are not expected to continue to rise as fast as they have, and the supply shortages currently causing difficulties for businesses are expected to ease. The pandemic hit the UK economy hard, but it has recovered well. In November last year, the level of economic activity was back to where it was just before the pandemic. Omicron has since caused activity to fall, as people went out less and spent less, but the impact looks to have been quite limited. With the recovery well underway, the economy doesn’t need as much support, so Bank Rate can be raised. By doing so, the MPC is taking action to ensure inflation returns to target, which will support people’s jobs and incomes over the coming years.”...
Bank of England says interest rate rise likely ‘over coming months’
November 18, 2021
BANK OF ENGLAND SAYS INTEREST RATE RISE LIKELY ‘OVER COMING MONTHS’ ** This article was first published on 18 Nov 2021. Note that on 16 Dec 2021 it was announced that interest rates would rise by 0.25% from 0.1% for the first time in three years. ** Lai Wah Co, Bank of England Deputy Agent for Greater London, writes… “The UK economy is continuing to recover from the huge fall in economic activity caused by the pandemic. As restrictions have been lifted, people have been spending more at shops in Greater London and other businesses across the rest of the UK. And businesses have generally grown more confident about making investment-spending decisions, many of which were postponed soon after the pandemic hit. In its latest quarterly Report, the Bank of England’s Monetary Policy Committee (MPC) said that it expected GDP—a measure of how much economic activity, or spending, is going on—in the UK to get back to its pre-pandemic level early next year. That’s not to say that all businesses and all households are now doing well. Some are still struggling to fully recover, especially in areas where restrictions are still in place and demand remains weak, such as foreign travel, some indoor hospitality and some of the creative arts sector. In many areas of the world economy, supply bottlenecks have developed—for example, there’s a severe shortage of the semi-conductors used in car manufacturing—leaving businesses short of the things they need. And, as we all know, businesses and households are facing much higher gas, oil, and electricity prices, too. Because of the combination of higher demand, supply bottlenecks and the rises in energy prices, inflation has picked up. In the UK, the prices of the basket of things people typically buy increased by around 3% between September last year and September this year. The MPC expects consumer price inflation to rise further above our 2% target and reach a peak at around 5% in spring next year. But the MPC also thinks that these high rates of inflation will be temporary. That’s because we don’t believe that demand around the world will continue growing as quickly as it has been during the initial recovery from the pandemic. So, many of the bottlenecks and shortages that are making things difficult for businesses should ease. But what will happen to energy prices is very uncertain—for instance, they might fall back towards their pre-pandemic levels more quickly than we assume in our forecast. In fact, gas prices have already fallen since the latest forecast was finalised. Another area of great uncertainty is the jobs market. With the help of the furlough scheme, which closed at the end of September, the increase in unemployment since the pandemic began has been relatively small. Indeed, many of the businesses that the Bank’s agents speak to have been finding it very difficult to get enough staff. My contacts have been telling me that lawyers, IT workers, warehouse and restaurant staff are particularly hard to find. That said, more people were still on furlough when the scheme ended than we’d expected, and unemployment is still higher than it was just before the pandemic. The closure of the furlough scheme isn’t expected to cause unemployment to rise much, but we don’t yet have the official data to be sure about that, making it very difficult to be certain how strong the jobs market currently is. Given the high level of uncertainty, a majority of the MPC voted to keep monetary policy unchanged in November. However, the MPC also said that a rise in the base rate, which we call Bank Rate, was likely over the coming months. To keep interest rates on mortgages and business loans low, Bank Rate was cut to a record low of 0.1% last year and our quantitative easing programme was expanded. Lower interest rates reduced the cost of borrowing for households and businesses, leaving them with more money to spend. These policies have provided important support for the UK economy. Now that the recovery is underway and inflation is above target, the economy is likely to need a bit less support, to ensure that inflation returns to the 2% target. With the help of our contacts here in Greater London, we will continue to ensure that the MPC has all the information needed to make policy decisions in the best interests of the economy and for the benefit of the people of the UK.” ...
Momentum to decarbonise aviation sector palpable reflects Matt Gorman of Heathrow on award of MBE
June 29, 2021
Matt Gorman, Director of Carbon Strategy, Heathrow reflects on the growing momentum behind decarbonisation as his life’s work is recognised with an MBE in the Queen’s Birthday Honours. I’m delighted to say that I was awarded an MBE in the Queen’s Birthday Honours on Friday for services to the “Decarbonisation of Aviation”. An unexpectedly emotional moment. One of my colleagues called it my “lifetime’s work” and when I looked back it is about 20 years I’ve been campaigning on, advising or working in aviation. It is also a sign that things are starting to shift in the sector. Within Heathrow that’s testament to leadership not just from me but our whole Exec and leadership team and a mobilisation across the company. And within our global sector, UK aviation players have taken a real lead. It’s also testament to the many campaigners, politicians and local communities who’ve been dogged in holding our feet to the fire. I do think we’re at a real turning point on climate. I’ve concluded that the fight or flight mechanism is so deeply engrained in humans that we only really start to act when there’s a clear and present danger. The fact that climate has moved from a “will happen in future” to an “is happening now and we can see how bad it could be” has been really significant. That sense of danger has catalysed the kind of public, political, business and investor mobilisation we’ve seen growing over the last couple of years. Two quotes today summed that danger/action dynamic up. Sir David Attenborough telling G7 leaders the decisions they take on climate are the most important in human history. And Chris Stark of the Climate Change Committee in today’s Green Power List saying: “The move to zero carbon is permanent, so let’s celebrate being the generation that will get the job done.” I remain really optimistic we can and will solve it. We may not solve it perfectly – we’re humans after all – but we’ll get there. The sense of momentum in the aviation sector at the moment is palpable – the last couple of years has been different to anything I’ve seen in the last 20. I think we’ll amaze ourselves how quickly things move this decade. ...
UK economy now recovering rapidly says Bank of England
May 18, 2021
The Covid-19 pandemic has been affecting us all for more than a year now. My fellow Agents and I know that those businesses that rely heavily on being able to have customers visit them in person—for instance, pubs, hotels, restaurants and cultural venues in the centre of London – have been particularly hard hit. And as my contacts across Greater London have been telling me for much of the past year, with less money coming in, businesses have generally cut their investment spending to save cash. Many people have spent less than usual, too—partly because they haven’t had all the usual opportunities to do so, and partly because some of them have lost their jobs and many more have been very worried about losing theirs. Here in London, the unemployment rate has risen to 7.2% in the three months to the end of February this year from 4.5% in the same period a year ago, although the Government’s furlough scheme has gone a long way to reduce the effect of the pandemic on jobs. In the early months of this year, the UK went back into lockdown, to halt the spread of coronavirus, with renewed tightening of restrictions on activity. But the fall in spending during the latest lockdown was much smaller than it was during the first lockdown last year, as people and businesses have become more adept at operating within the restrictions. And with a growing proportion of the UK population being vaccinated and infection rates falling, restrictions are now being loosened again, allowing businesses to reopen more fully. It appears likely that being vaccinated is making people, some of whom will have saved money during lockdown, increasingly confident about going out and spending. In addition, as we note in our Agents’ summary of business conditions in the Bank’s latest Monetary Policy Report (MPR), published earlier this month, we’re hearing that some businesses are being encouraged to bring forward their investment spending on plant and machinery in response to tax breaks announced in the recent Budget. The summary also notes that our contacts across a range of business sectors say that their job cuts have largely been completed, and a growing number say that they’re hiring again. A reduced risk of job losses should further support people’s confidence and spending. All told, the recovery is already underway, and the level of economic activity is looking stronger than we thought only a few months ago. The Bank’s latest forecast shows the economy getting back to where it was before the pandemic, in terms of total spending, around the end of this year. The prompt and substantial action we have taken in response to the pandemic is underpinning that recovery. By keeping Bank Rate at the record low of 0.1% and continuing with the expansion of our quantitative easing (QE) programme, we are helping maintain low-interest rates on people’s mortgages and businesses’ loans. We don’t intend to raise Bank Rate or reduce QE until we have clear evidence that the economy is making significant progress towards a full recovery and inflation is returning sustainably to target. As the economy recovers and the effect of last year’s falls in oil and gas prices fades, we expect inflation (the pace of price rises), which is currently just below 1%, to return to our 2% target. Even though a strong recovery is underway and vaccinations have reduced the risk of another downturn, the future path of the economy remains uncertain. So we can’t take our eye off the ball. And we, the Bank’s Agents, will continue to gather the intelligence that keeps policy-makers here at the Bank in touch with what’s going on in Greater London and the rest of the UK. ...
January 2021: notes on strategic trends
February 1, 2021
The Local Economy The UK is reportedly in a “W” recovery as it is in its third lock down, whilst many other countries are on a “V” recovery whilst China is reporting just over 2% growth. We are to consider where the UK sits in the three “spheres of influence”; that of our interaction between USA, Europe and China. Over recent months, China has been part of forming a Regional Comprehensive Economic Partnership“RCEP” with 14 other counties which will result in 30% of the worlds trading block so we cannot ignore this emerging “market”. Who will your business align with? This is a critical question when strategizing where to do global trade. Some readers may be familiar with the term of a “K” recovery, meaning that some areas will do really well in recovery but others will not (such as hospitality, travel and the Arts). The north – south divide is obvious as repeated lock downs occur. How will the recovery be considered as investment decisions are made to address the “levelling up” of the United Kingdom; will our great, great, great grandchildren across the country be paying evenly for the effects of COVID-19; will they be recovering equally as the massive debt will need to be passed over a generations? Low interest rates may mean we can continue to manage and service this national debt for the moment but we need scale up businesses (growing at 15%+ year on year) to avoid being hit in the future. Supply Chain Commentary talks about it now in the rhetoric of 4.0. The critical underpinning of it all is investment and address of Cyber security in supply chain systems. COVID has accelerated digitalisation of all businesses but particularly, logistics. Consumers want to buy in a changing retail environment where shopping is Fun, Easy and from a place where they are in control but most of all, Safe. There is a whole new e-shopper that previously was only emerging in 2019; that of the “silver” generation purchasing online. This group are forcing a change for creating new markets and escalating some sectors such as board games, beauty products and DIY. Buying online has demanded the highest level of R&D attention; around cyber security, getting goods to customers and managing inventory. IT businesses have thrived in 2020 (eg Ed Tech, Health-Tech, Fin-Tech and digital payment systems). Logistics & Operations for 2021 is all about IT; for example, Simulation, “Internet of Things”, autonomous systems, data system integration, stock and reporting platforms, the list goes on. Investment is critical in the recovery, especially around rail, road infrastructure and re balancing the UK demographic area. Investment in Skills innovation is key to a scale up economy and key markets are decimated and people need new jobs in totally new areas. Important as well is Automation; more production neds to happen in the UK as China increases its pace on automation, replacing those hand workers on which the UK has relied on for so long. The thought is, if they can manage the shift, why can’t we? This will assist in “near shoring” and even additive manufacturing (3D printing by in demand). Businesses are balancing multi shoring (near and medium/ far) to balance out the risks of the supply chain. Thus, small footprint manufacturing is even more important (with sustainable benefits) but possibly less competitive whilst we continue to invest in local automation and up-skilling. The new normal – what is it? Pre-existing processes, people and infrastructure and how to adapt from pre to post normal remains a topical issue. How do we adapt? Charles Darwin writing in his “Origin of the Species” (1859) writes “it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself”. Entrepreneurial businesses adopting the SOAP approach (S= Strategic, O=Opportunistic, A = Adaptability, P=Purpose) are continuing to thrive as they navigate from lock down to post normal. Repeated lock downs are forcing big changes in the supply chain. Supply chains are being challenged at each lockdown on their robustness, supply chain resilience, changes to transportation flows, warehouses requiring reconfiguration and investment is fast occurring in being digitised and automated. Demands for innovations to processes have been critical along with collaborations with key partners. Businesses with a clear purpose, who spot opportunities and adapt are surviving best. Globally, Brexit could be argued to be a disruption for global businesses who are also dealing with navigating trade with other countries such as South America and the Middle East. But Brexit is of course, causing teething problems locally, especially around form filling. Businesses who were not pro-active in its preparation, are now faring worse than organised ones. Some businesses have fared really badly and the verdict is out on these markets (such as food and financial services). It is noted that the UK exports a split of 60/40 goods vs services and how will this change over the coming months and years. It could be argued that the UK has been relatively lazy over the past 27 years in terms of investment in our processes and making significant changes to our systems. Brexit and COVID has been a major trigger for addressing, investing and activating critical change in supply chain management. Never is the adage so true in that “Investment is the engine of growth” (Prof. Stephanie Hussels, Cranfield School of Management). Sustainability remains key… the UK is on track for net zero 2050. COVID has been a major contributor to reducing climate change and the general consensus is how to capture and sustain this reduction. How to manage holidays, travelling for work and even home deliveries of supermarket shopping which is broadly thought to be creating less carbon impact than making a individual trips in a petrol car. But, supermarkets and e-tailers are reporting that there is a high cost for this home service and perhaps the consumer is underpaying for this “luxury” in order for delivery business models to deliver historic levels of profit. UK Inflation: At 3.1% inflation is rampant in stock market, property and bonds. These are strong markets as money is pumped into stock market via quantitative easing. The price of key assets such as homes and warehousing have escalated. It is debatable whether this will soon be completely out of reach for ownership of all but a few. This is in contrast to high street shops and offices where there the verdict is out; they may either be sold or re-purposed. Accordingly, it will be interesting to see the Spring Budget for breaks on tax incentives for entrepreneurs who want to scale up and rewarded with Entrepreneurs Relief and possibly the introduction of new taxes such as digital taxes, corporate tax, and how to manage the gaps in VAT and rates earnings from the past 12 months. Inflation on retail goods and services has remained low over the past decade. 60% of our imported foods come from Spain and these EU imports are likely to fall as Brexit sets in and the UK adapts. Over time, it is thought that inflation will undoubtedly creep in. Food prices have been arguably low in the UK for a long time in comparison to other countries so this market may see inflationary prices. Time will tell on all of the above, but for now, the general take out is, keep Entrepreneurial, Invest in research & development, skilling and digitising systems and manage sustained debt and cash conservatively. Extracts taken from “Post-Covid and post-Brexit Challenges (18.1.21)” from Cranfield School of Management (thanks to Professor Joe Nellis, Deputy Dean and Professor of Global Economy, Cranfield School of Management, Richard Wilding OBE and Prof. Stephanie Hussels, Director Entrepreneurship at Cranfield School of Management) Author: Annika Bosanquet (Head of Finance and Logistics; Wrapology International Ltd)...
Bank of England provides further support for UK economy
November 18, 2020
In the Bank of England’s latest update to West London Business, Lai Wah Co deputy agent for greater London outlines the banks support for the UK economy… The Covid pandemic has reduced levels of economic activity across the UK this year. Households and businesses have generally been spending and investing less than they were before the pandemic struck. This fall in spending and investment risks significant job losses as many businesses face much lower demand for their goods and services. Although households’ spending picked up over the summer, when social-distancing restrictions were loosened, it remained well below normal levels. And the recent pick-up in Covid cases will likely reduce spending and investment further. Government schemes have significantly reduced the impact on jobs, but unemployment is expected to rise further over the coming few months. The Bank of England’s Monetary Policy Committee (MPC) has responded with a strong package of measures to support the economy. Earlier this year, the MPC cut Bank Rate to a record low of 0.1%. Because interest rates on many business loans and mortgages are linked to Bank Rate, businesses’ and households’ borrowing costs tend to fall when it’s cut. Lower borrowing costs encourage businesses to invest and keep their staff in work, and households tend to have more money to spend too. At its latest meeting on 5 November, the MPC decided to keep Bank Rate at 0.1%. The MPC has also been injecting new money into the UK economy through quantitative easing (QE). Buying government bonds with this new money helps to keep interest rates on mortgages and business loans low. At its November meeting, the MPC announced a further £150 billion of QE, taking the total announced this year to £450 billion. Given the measures taken by the Bank, and the substantial support being provided by the Government, the MPC expects economic activity to start to recover again soon, assuming the impact of Covid fades. Leaving the EU Single Market and Customs Union is expected to have an impact on the economy next year. Adjusting to a new UK-EU trading relationship, which in the MPC’s forecast is assumed to be similar to the trading relationship between the EU and Canada, will temporarily lower the pace of recovery in the first half of next year. But the recovery is still expected to continue steadily over the coming few years, assuming the impact of Covid does fade, as households and businesses grow more confident to spend and invest. The recovery in spending and investment is expected to cause inflation to rise back to the 2% target level that the Government has set the MPC. Inflation is currently well below target, in part due to the effects of Covid—for example, the pandemic has caused world oil and gas prices to fall. The MPC’s analysis and forecasts are set out in detail in the Monetary Policy Report it published alongside its Bank rate and QE decisions. The Monetary Policy Report was published before reports of the development of an effective vaccine. While this is good news that could dramatically reduce uncertainty for households and businesses, the future path of the economy still remains unusually uncertain. A lot will depend on how the Covid pandemic develops and how governments, households, and businesses respond. Because the MPC sees substantial risks to the outlook, it has stated it does not intend to withdraw any of the support it is providing until there is clear evidence that inflation and the economy are recovering. And it stands ready to provide further support, if judged necessary. The evidence that I and my fellow Agents gather from our contacts in Greater London and across the UK will continue to play a crucial part making sure the Bank’s policymakers are kept fully informed. ...
BANK OF ENGLAND SEES SIGNS OF ECONOMIC RECOVERY
August 24, 2020
The latest insights from the Bank of England’s Lai Wah Co, Deputy Agent for Greater London. Since the Covid-19 crisis began, the Bank has taken extraordinary measures to support employment and economic activity in the UK. We have cut Bank Rate from 0.75% to 0.10%, allowing businesses and households to borrow more cheaply. Through our new bank-funding scheme (the TFSME), we are giving banks incentives to pass that Bank Rate cut on to their customers and keep lending to small- and medium-sized businesses. And we are injecting a total of £300 billion of new money into the economy via quantitative easing, or QE, to support spending by businesses and households. In its latest Monetary Policy Report, the Bank’s Monetary Policy Committee (MPC) notes encouraging signs that households’ spending has already substantially recovered from a sharp fall in the first half of the year. Assuming the impact of Covid-19 fades gradually, the MPC’s central expectation is that economic activity will continue to recover, helped by the measures that the Bank and the Government have taken. As social distancing eases further, households are expected to spend more and businesses to grow more confident in making investment-spending decisions. Unemployment is likely to rise in the second half of this year, as the Government’s job-retention schemes are wound down. But it is expected to fall gradually from the beginning of next year onwards, as the economic recovery continues. Inflation is expected to fall further below the 2% target later this year, partly because of the effects of a temporary cut in VAT and recent falls in the price of oil. As these effects unwind and the recovery continues, inflation is expected to return to target over the following few years. The future path of the economy remains unusually uncertain, however. It will depend on how the pandemic develops, the measures taken to protect public health, and how governments, households, and businesses respond. Because the MPC sees substantial risks to its expectations, it does not intend to withdraw any support until there is clear evidence of further recovery in activity and inflation. And it stands ready to provide further support, if necessary. In its latest Financial Stability Report, the Bank’s Financial Policy Committee (FPC) notes that banks have been playing a major role in supplying the credit necessary to get UK businesses and households through this crisis. The FPC judges that the major banks, while they cannot be infinitely resilient, are resilient across a very wide range of possible paths that the economy could take. The banks therefore have the resilience, and it is in their collective interest, to continue to support businesses and households. At the Treasury’s request, the FPC will consider how the financial system could even better support the supply of finance to UK businesses. The Financial Stability Report also contains updates on work being done to reduce other risks across the financial system, including those related to potential disruption at the end of the current Brexit transition period and the move to reduce reliance on Libor-linked contracts. However the economy evolves and the risks to monetary and financial stability change, the intelligence we gather from our contacts in Greater London will remain crucial in shaping our policies for the good of the people of the UK....
The aviation sector needs to be protected
June 24, 2020
THE AVIATION SECTOR NEEDS TO BE PROTECTED writes Andrew Dakers, Chief Executive, West London Business With the UK’s hub airport on our doorstep, local businesses can count ourselves exceedingly lucky. With easy access to global markets, it has meant attracting employers – large and small – to our region. With thousands of jobs on offer, from retailers to researchers, it has seen generations of families working at the airport. And with a commitment to the next generation, young people have been able to use the airport as a launchpad for their careers. Just a few months ago, the industry was thriving – planes were carrying goods from our local businesses to markets all over the world, thousands of people had secure jobs in an exciting growth sector and Heathrow was continuing preparations to expand and create new routes. But this is now all under threat. For an industry reliant upon travel, trade and tourism, the pandemic has hit the aviation industry harder than most and it is no exaggeration to say that this is the biggest crisis it has ever faced. Our local communities are dependent upon a flourishing Heathrow; the consequences of the pandemic have therefore been disastrous. A recent study suggests as many as 200,000 employees have been furloughed and around 4,000 made redundant from the seven boroughs around the airport. The devastating impact on the local economy shows just how important the airport is. The speed at which Heathrow recovers is therefore critical – people’s livelihoods depend on it and we need the Government to do all it can to help. Heathrow has done what it can – waiving parking fees for airlines and car parking for passengers, while working with businesses located within the terminals to review their terms to ensure they are able to survive the crisis. It is clear that those within the industry are supporting each other wherever possible. But these are just short term measures and they cannot go on indefinitely. When revenues have all but disappeared, it is fixed costs – made up of business rates and employees – that are devastating the industry. Heathrow is the largest business rate payer in the UK with an annual bill of £120m. This makes sense when planes are flying and airports are bustling, but it is a crippling sum when the airport is facing a 90% drop on traffic. If you don’t reduce one, then little option is left but to reduce the other. In Scotland and Northern Ireland, the devolved Governments have taken action and cut business rates for airports by 100% for the next 12 months. The Westminster Government should do the same, enabling airports across the UK avoiding having to burn through their cash reserves and take more difficult decisions to cut their costs further. They have already done the same with a number of other industries such as the retail, hospitality and leisure sectors. Just like in Scotland and Northern Ireland, a 12 month rates waiver for the aviation industry would ease some of the burden in the short term. Going forward, demand is also unlikely to return to pre-pandemic levels for the next few years. Airports would therefore be helped if the valuation methodology the Government uses to calculate business rates would take into account the financial implications of the pandemic. Without such decisions being made, it is inevitable that airports such as Heathrow will have to continue to take difficult decisions which affect people’s livelihoods. The airport is left with little choice when it is crippled by fixed costs and a lack of demand. Instead we need the airport, with the pressure of business rates reduced, to have the resources to retain jobs and rebuild momentum around its push to deliver sustainable aviation and contribute to a green economic recovery. That is why we are urging the Government to use the powers it has to protect not just the sector – but businesses, jobs and livelihoods....
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