Inflation Report February 2015 Money and asset prices

Chart 1.1 Markets pricing a more gradual increase in Bank Rate International forward interest rates (a) Sources: Bank of England, Bloomberg, European Central Bank (ECB) and Federal Reserve. (a)The November 2014 and February 2015 curves are estimated using instantaneous forward overnight index swap rates in the fifteen working days to 5 November 2014 and 4 February 2015 respectively. (b)Upper bound of the target rate range of 0% to 0.25%.

Chart 1.2 Large and broadly offsetting moves underlie a small appreciation in sterling since November Sterling exchange rates

Chart 1.3 Longer-term interest rates have been falling since late 2013 International ten-year government bond yields (a) Sources: Bloomberg and Bank calculations. (a)Zero-coupon yields on ten-year benchmark government bonds. (b)An estimate based on French and German government bonds.

Chart 1.4 Implied inflation rates down internationally, but remain around pre-crisis average in the United Kingdom Five-year, five-year forward implied inflation rates (a) Sources: Bloomberg and Bank calculations. (a)Derived from the Bank’s government liability curves using inflation swap rates. (b)Implied inflation rates for RPI. (c)An estimate based on French and German inflation swap rates. Implied inflation rates for HICP. (d)Implied inflation rates for CPI.

Chart 1.5 Lower real rates the predominant factor behind lower long-term interest rates Contributions to the fall in five-year, five-year forward nominal interest rates since the start of 2014 (a) Sources: Bloomberg and Bank calculations. (a)Derived from the Bank’s government liability curves. The contribution of real rates and implied inflation to the change in nominal rates is calculated using inflation swap rates. (b)Change between 31 December 2013 and the fifteen working days to 5 November (c)Change between the fifteen working days to 5 November 2014 and the fifteen working days to 4 February 2015.

Chart 1.6 Advanced-economy equity prices have risen since the November Report International equity prices (a) Source: Thomson Reuters Datastream. (a)In local currency terms, except MSCI Emerging Markets, which is in US dollar terms.

Chart 1.7 Lending rates have fallen over the past three months Average quoted household interest rates (a) (a)Sterling-only end-month average quoted rates. The Bank’s quoted rates series are weighted averages of rates from a sample of banks and building societies with products meeting the specific criteria (see Data are non seasonally adjusted. (b)On mortgages with a loan to value ratio of 75%.

Chart 1.8 Spreads on bank funding remain low UK banks’ indicative longer-term funding spreads Sources: Bank of England, Bloomberg, Markit Group Limited and Bank calculations. (a)Constant-maturity unweighted average of secondary market spreads to swaps for the major UK lenders’ five-year euro senior unsecured bonds or a suitable proxy. (b)Sterling average of two and three-year spreads on retail bonds, over relevant swap rates. (c)Unweighted average of the five-year senior CDS premia for the major UK lenders. (d)Constant-maturity unweighted average of secondary market spreads to swaps for the major UK lenders’ five-year euro-denominated covered bonds or a suitable proxy.

Chart 1.9 Mortgage applications and approvals remain weak Mortgage applications, mortgage approvals and housing transactions Sources: Bank of England, HM Revenue and Customs and National Hunter. (a)Seasonally adjusted by Bank staff. (b)Number of residential property transactions for values of £40,000 or above.

Chart 1.10 Strength in unsecured credit driven by personal loans Contributions to unsecured lending (a) (a)Excludes student loans.

Chart 1.11 Broad money grew at a similar rate as GDP in 2014 Broad money, nominal GDP and credit (a)M4 and M4 lending (excluding securitisations) growth prior to 1998 Q4, and equivalent measures excluding the deposits of, and borrowing by, intermediate other financial corporations thereafter. (b)At current market prices. The latest observation is 2014 Q3.

Tables

Table 1.A Monitoring the MPC’s key judgements

Table 1.B Bond and equity issuance have been strong during 2014 Net external finance raised by PNFCs (a) (a)Includes sterling and foreign currency funds. (b)Non seasonally adjusted. (c)Includes stand-alone and programme bonds. (d)As component series are not all seasonally adjusted, the total may not equal the sum of its components. (e)Sterling net lending excluding the effects of securitisations. Percentage change on a quarter earlier.