• GDP to accelerate to 0.5% Q2 2013
  • Inflation to peak at 3.1% Q3 2013
  • Sees GDP rising to 1.7% in Q2 2014, 2.2% Q2 2015
  • CPI to remain above 2% for much of next to years
  • Forecasts assume financial crisis impact slowly fading

Presser

  • New BOE forecasts are a welcome change
  • sees stronger growth lower CPI than 3 months ago
  • Officials must press on to lower employment
  • Sees significant margin of spare capacity
  • UK economy faces challenge of substantial rebalancing
  • A recovery is in sight for the UK economy
  • Markets expect bank rate to remain below 1% for a number of years
  • Demand and effective supply to pick up gradually
  • Monetary policy alone cannot solve all our problems

Merv signs off by handing over “to a younger generation after 82 inflation press conferences”.

Into the Q& A

  • UK hasn’t had the housing bust other countries have seen so housing market has not recovered as much as expected
  • Important that we do not end up with permanent tax payer guarantees for mortgages.
  • Domestically the UK has done what’s been needed to come through the crisis. These problems still need to be addressed abroad.
  • Nothing more important than price stability as a mandate for the BOE.
  • Transparency more important than discretion over inflation policy
  • Knows that real interest rates must go back to healthy levels. but must be steered correctl. May cause asset price falls.
  • Pushing up rates too quickly will set back economy.
  • At least 1% of inflation down to uncontrollable effects (fuel etc).
  • Tells Slovenia journo they are more than welcome to join the Sterling area
    :-D
  • BOE does not diversify holdings of foreign gov bonds. Small fx reserves in mainly US, German and Japanese bonds
  • North sea oil production rundowns accounted for large part of fall in output and GDP last year. Should stabilise over next couple of years. Will improve UK trade balance and GDP.
  • On negative rate talk at the ECB thinks financial system more capable of coping with it than before. Is an instrument that is on the MPC table but so far chosen not to implement it.

Full copy of report is here.