UK MONETARY POLICY: THE INTERNATIONAL CONTEXT Rachel Lomax Deputy Governor, Bank of England APCIMS A

1
UK MONETARY POLICY THE INTERNATIONAL
CONTEXTRachel LomaxDeputy Governor, Bank of
EnglandAPCIMS Annual Conference 17 October 2005
2
(No Transcript)
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UK import prices
Index 2002 100
115
Total imports
Total goods imports excluding oil
110
Total goods imports
105
100
95
90
1997
1999
2001
2003
2005
Source ONS
4
World GDP and UK policy rates
Per cent
Percentage change on a year earlier
10.0
8.0
9.0
7.5
8.0
7.0
7.0
6.5
Policy rate (rhs)
6.0
6.0
5.0
5.5
4.0
5.0
3.0
4.5
2.0
4.0
World GDP (lhs)
1.0
3.5
0.0
3.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source IMF, Bank of England calculations
Weighted by UK export shares
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World GDP, UK final domestic demand and UK
policy rates
Per cent
Percentage change on a year earlier
10.0
8.0
9.0
7.5
8.0
7.0
7.0
6.5
Policy rate (rhs)
6.0
6.0
Final domestic demand (lhs)
5.0
5.5
4.0
5.0
3.0
4.5
2.0
4.0
World GDP (lhs)
1.0
3.5
0.0
3.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source ONS, IMF, Bank of England calculations
Weighted by UK export shares
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World GDP growth
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1970
1978
1986
1994
2002
Source IMF, Bank of England calculations
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Contributions to World GDP growth
World GDP (PPP Weighted)
World GDP (UK Trade Weighted)
Percentage change on a year earlier
Percentage change on a year earlier
ROW
ROW
6.0
6.0
Euro Area
Euro Area
US
US
5.0
5.0
China
China
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
1995
1997
1999
2001
2003
1995
1997
1999
2001
2003
Source Bank of England calculations
Source Bank of England calculations
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Oil prices real and nominal
per barrel
70
60
Deflated by M6 export prices
Nominal
50
40
30
20
10
0
1970
1975
1980
1985
1990
1995
2000
2005
Source Datastream, Bank of England calculations
M6 G7 countries excluding UK
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Contributions to oil demand growth
Percentage change on a year earlier
4.0
Rest of the world
3.5
Europe
Forecast
US
3.0
China
2.5
2.0
1.5
1.0
0.5
0.0
2000
2001
2002
2003
2004
2005
2006
-0.5
Source IEA
10
Oil price uncertainty
per barrel
120
100
WTI spot price
Futures curve, 10 October 2005
80
60
40
20
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source Bloomberg, Bank of England calculations
11
Oil price uncertainty
per barrel
120
100
WTI spot price
Futures curve, 10 October 2005
80
Range of Consensus forecasts for January 2006 and
October 2006 taken on 10 October 2005
60
40
20
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source Bloomberg, Bank of England calculations
12
Oil price uncertainty
per barrel
120
100
WTI spot price
Options-derived fan chart 10 October 2005
80
Range of Consensus forecasts for January 2006 and
October 2006 taken on 10 October 2005
60
40
20
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source Consensus Forecasts, Bloomberg and Bank
of England calculations
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Global current accounts
Billions
Developing Asia
800
Euro Area
US
600
Middle East and Africa
Others and Statistical
400
Discrepancy
200
0
-
200
-
-
400
-
-
600
-
-
800
-
1997
2004

Source IMF
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Long-term nominal interest rates
Per cent
UK
18
US
16
Germany
14
12
10
8
6
4
2
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
Source Global Financial Data
15
Long-term real interest rates
Per cent
9
UK 5-10 year real forward (derived from index
linked gilts)
8
US 5-10 year nominal forward less survey
inflation expectations
7
German 5-10 year nominal forward less survey
inflation expectations
6
5
4
3
2
1
1985
1988
1991
1994
1997
2000
2003
Source Consensus Forecasts, Bank of England
calculations
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Bond spreads
Emerging markets sovereign bond spreads
Investment grade corporate bond spreads
Percentage points
Basis points
3.0
3,500
Asia
Sterling
3,000
Latin America
2.5
Dollar
Emerging Europe
Euro
2,500
2.0
2,000
1.5
1,500
1.0
1,000
0.5
500
0.0
0
1998
1999
2000
2001
2002
2003
2004
2005
1998
1999
2000
2001
2002
2003
2004
2005
Source JP Morgan Chase Co
Source Merrill Lynch
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UK MONETARY POLICY THE INTERNATIONAL
CONTEXTRachel LomaxDeputy Governor, Bank of
EnglandAPCIMS Annual Conference 17 October 2005