Chief Executive’s Weekly News for 3rd February 2020

Bank of England Monetary Policy Report:

 

The interest rate decision

We set interest rates to influence spending in the economy and to ensure inflation (the pace of price rises) returns to our 2% target sustainably.

Low, stable and predictable inflation supports jobs and growth.

Over the past decade, our economy has needed interest rates to stay very low.

In 2019, the UK economy slowed because firms’ uncertainties about Brexit reduced their spending, and growth in the world economy slowed. UK inflation fell back below our 2% target.

The latest data suggest that the uncertainty facing businesses has fallen, and that global growth has stabilised. We expect uncertainty to fall further and global growth to pick up. If that happens, it should help to support growth here in the UK.

If that does not happen, then we may need to lower interest rates to support UK growth and ensure that we return inflation to our 2% target sustainably.

If the economy develops as we expect, then upward pressure on prices should build gradually over the next few years. In that case, we think a modest increase in interest rates may be needed to keep inflation at our 2% target.

 

Growth has slowed in the UK

Growth in the UK economy slowed last year.

Uncertainty about the outcome of Brexit helps explain why UK growth has slowed.

We think it is the main reason why investment by UK companies has been weak. Uncertainty encourages businesses to delay spending on things like new machinery.

Lower growth in other countries also helps explain why UK growth slowed in 2019.

It reduced the demand for the goods and services that the UK sells abroad.

 

Inflation is below our 2% target

Inflation is currently below our 2% target.

Inflation has fallen over the past year largely because of lower oil and gas prices. That has reduced utility bills and petrol prices.

Slower growth in the UK economy has also probably reduced inflation.

When people are not spending as much, firms tend to increase their prices by less.

 

UK Economic Outlook:

UK GDP growth was modest in 2019 — and is estimated to have been around zero in Q4 — dampened by slower global growth and elevated Brexit-related uncertainties. In its annual reassessment of supply-side conditions, the MPC judged that potential supply growth has also slowed over the past year. On balance, there is judged to be a margin of spare capacity in the economy, which is exerting downward pressure on CPI inflation.

The most recent indicators suggest that global growth has stabilised, reflecting the partial easing of trade tensions and the significant loosening of monetary policy by many central banks over the past year. Global business confidence and other manufacturing indicators have generally picked up. Domestically, near-term uncertainties facing businesses and households have receded. Surveys of business activity have picked up, quite markedly in some cases, and investment intentions appear to have recovered. Housing market indicators have strengthened and consumer confidence has increased slightly.

UK GDP growth is projected to pick up a little in early 2020. Further ahead, and conditioned on a market path for Bank Rate that falls slightly over the forecast period, the recovery in UK growth is supported by a pickup in global activity, a further decline in Brexit uncertainties and the Government’s announced spending measures. Support from these factors is sufficient to boost demand growth above weak potential supply growth. As a result, spare capacity is gradually eroded over the first part of the forecast period and a margin of excess demand builds thereafter. While CPI inflation remains below 2% in the first part of the forecast period, strengthening domestic price pressures alongside a waning drag from energy prices mean that inflation rises towards the target over 2021. Inflation is projected to be 2% in 2022 Q1 and slightly above the target in 2023 Q1.

 

Government visa for scientist and researchers to fast track

The UK government has introduced a new fast-track visa scheme with no upper limit, designed to attract the scientist to country. Additionally, the scheme is expected to ensure that the UK retains a leading edge in technological developments after Brexit.

The global talent visa will enable the scientists and researchers to accelerate through the UK visa application process. In addition, it is a part of wider government reforms to speed up the rate of highly skilled people coming into the country after its departure from the EU.

The initiative will replace the current tier 1 exceptional talent visa backed by UK Research and Innovation (UKRI), the department for business, energy and industrial strategy (BEIS), and the home office.

The announcement also ties in with a £300m funding grant by the government for “experimental and imaginative mathematical sciences” over the next five years, meaning £60m will be available each year for new PHDs, mathematics fellowships and research projects.  

 

Glyphosate: Kelloggs has announced that it will work with its suppliers to phase out the use of glyphosate by 2025.

The Environment Bill was introduced to Parliament on 30^th January. This Bill underlines the government’s commitment to tackling climate change and to protecting and restoring our natural environment for future generations. The Environment Bill will enshrine environmental principles in law and introduce measures to improve air and water quality, tackle plastic pollution and restore habitats so plants and wildlife can thrive. Please find the Defra press release here.

Commons Select Committees: As MPs’ scrutiny of the Government will now resume in earnest as the Commons Select Committees resume activity following the election of the new Chairs for this Parliament. One of the more notable announcements this week was the election of Jeremy Hunt, as Chair of the Health and Social Care Select Committee. He replaces the independent MP, Sarah Wollaston, who lost her seat at the general election.  Perhaps few MPs will have a better understanding of the work of the Department than the former Health Secretary and it will be interesting to see what he thinks about the work of the Department under his successor, Matt Hancock.

£1m fund to help tackle food waste: Businesses and not-for-profit organisations in England will benefit from £1.15 million of funding to help them develop new ways to tackle food waste from the retail and manufacturing sectors by changing people’s behaviour or transforming it into other materials. From educating the public on how to store fresh food, to ideas such as turning food waste into new, edible products, grants will be available for creative solutions as part of the Government’s efforts to reduce food waste in the UK by 20% by 2025.