1.  Slide 1 | The UK Economic Outlook Neil Ashbridge, Deputy Agent, Bank of England, North West Agency

2. The UK Monetary Framework

3. Inflation What is inflation? What causes inflation? Why is inflation undesirable?

4. Inflation Hampers longer-term planning Increases risk and borrowing costs Misdirects resources Less equitable Economic instability

5. Annual Inflation in the UK

6. UK Monetary Policy Framework Monetary Policy Committee (MPC) The remit is ‘price stability’ The target is (CPI) inflation of 2.0% Target is symmetrical Single tool - short term interest rates

7. The UK Economic Outlook

8. Money and assets prices

9. Bank Rate and forward market interest rates JunJulAugSepOctNovDecJanMay 7-May-08 4-Jun-08 4.00 4.25 4.50 4.75 5.00 5.25 5.50 5.75 6.00 MPC Dates Per cent 02-July-08

10. Sterling exchange rates

11. FTSE all share cumulative changes since January 2007

12. Halifax and Nationwide house price inflation

13. 42,000 May 2008 Mortgage approvals for house purchases

14. Q2 2007Q3 2007Q4 2007Q1 2008Q2 2008Q3 2008 -80 -60 -40 -20 0 20 40 60 80 Expected change Reported change Net percentage balance Overall corporate credit availability Less credit supplied More credit supplied

15. Demand for credit by PNFCs -80 -60 -40 -20 0 20 40 60 80 Q2Q3Q4Q1Q2Q3Q2Q3Q4Q1Q2Q3 Medium-sized PNFCs 08 070807 Large-sized PNFCs Net percentage balances Expected change Reported change Lower demand Higher demand

16. Demand and output

17. Q1 2.3 Real GDP at market prices 0.3 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2002200320042005200620072008 Percentage changes Latest quarter on a year earlier Latest quarter on previous quarter

18. -2 0 2 4 6 8 2002200320042005200620072008 Percentage change, latest 3 months on previous year ONS Survey average Retail sales values vs surveys

19. Business investment -10 -5 0 5 10 15 2002200320042005200620072008 Percentage changes Latest quarter on a year earlier Latest quarter on previous quarter Q1 4.5 -1.8

20. US Japan Euro area US, Euro area and Japan GDP

21. Supply

22. Employment rate 16+ population 59.5 59.6 59.7 59.8 59.9 60.0 60.1 60.2 60.3 60.4 60.5 200320042005200620072008 Per cent Single month data Overlapping 3 month data

23. Changes in surveys of employment intentions since September 2007

24. Costs and prices

25. Services CPI Goods CPI goods and services price inflation

26. Coal, gas and oil prices Jan 2003=100 Coal Gas Oil Index 0 50 100 150 200 250 300 350 400 450 200320042005200620072008

27. Import price inflation annual rate Per cent Goods import deflator excluding energy components 6.3 10.6 -6 -4 -2 0 2 4 6 8 10 12 2002200320042005200620072008

28. Input prices Output prices Manufacturers input and output prices

29. 0 1 2 3 4 5 6 7 20012002200320042005200620072008 AWE AEI Per cent Whole economy earnings growth 3.8 4.5

30. Prospects for inflation

31. One year ahead inflation expectations June 4.3% 4.6% 5.6% May

32. GDP projection based on market interest rate expectations

33. CPI inflation projection based on market interest rate expectations

34. Risks around central projection MPC’s projection continues to be shaped by two opposing factors –Tighter credit expected to weigh on demand and therefore inflation but the magnitude and duration of the tightening and its impact on households and companies is highly uncertain. –A prolonged period of above-target inflation, as envisaged in the central projection, could lead to higher inflation expectations and push up on medium-term inflationary pressures. In the near-term the risks to growth are balanced, but the possibility of a longer-lived slowdown means that the risks are to the downside further out. In contrast, the risks to inflation are to the upside.