1. 1 UK MONETARY POLICY: THE INTERNATIONAL CONTEXT Rachel Lomax Deputy Governor, Bank of England APCIMS Annual Conference 17 October 2005

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3. 3 UK import prices 90 95 100 105 110 115 19971999200120032005 Total imports Total goods imports excluding oil Total goods imports Index 2002 = 100 Source: ONS

4. 4 World GDP * and UK policy rates Source: IMF, Bank of England calculations 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 199719981999200020012002200320042005 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Per centPercentage change on a year earlier World GDP * (lhs) Policy rate (rhs) * Weighted by UK export shares

5. 5 World GDP *, UK final domestic demand and UK policy rates Source: ONS, IMF, Bank of England calculations 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 199719981999200020012002200320042005 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Per centPercentage change on a year earlier Policy rate (rhs) World GDP * (lhs) Final domestic demand (lhs) * Weighted by UK export shares

6. 6 World GDP growth Source: IMF, Bank of England calculations Percentage change on a year earlier PPP weighted UK trade weighted 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 19701978198619942002

7. 7 Contributions to World GDP growth World GDP (PPP Weighted) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 19951997199920012003 ROW China Euro Area US Percentage change on a year earlier 0.0 1.0 2.0 3.0 4.0 5.0 6.0 19951997199920012003 World GDP (UK Trade Weighted) Percentage change on a year earlier ROW China Euro Area US Source: Bank of England calculations

8. 8 Oil prices – real and nominal Deflated by M6 export prices* Nominal $ per barrel 0 20 40 60 19701975198019851990199520002005 10 30 50 70 Source: Datastream, Bank of England calculations*M6 = G7 countries excluding UK

9. 9 Contributions to oil demand growth Source: IEA -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2000200120022003200420052006 Rest of the world Europe US China Forecast Percentage change on a year earlier

10. 10 Oil price uncertainty 0 20 40 60 80 100 120 199819992000200120022003200420052006 $ per barrel Futures curve, 10 October 2005 Source: Bloomberg, Bank of England calculations WTI spot price

11. 11 Oil price uncertainty 0 20 40 60 80 100 120 199819992000200120022003200420052006 $ per barrel Futures curve, 10 October 2005 Source: Bloomberg, Bank of England calculations WTI spot price Range of Consensus forecasts for January 2006 and October 2006 taken on 10 October 2005

12. 12 Oil price uncertainty 0 20 40 60 80 100 120 199819992000200120022003200420052006 $ per barrel Range of Consensus forecasts for January 2006 and October 2006 taken on 10 October 2005 Source: Consensus Forecasts, Bloomberg and Bank of England calculations Options-derived fan chart 10 October 2005 WTI spot price

13. 13 Global current accounts Source: IMF -800 -600 -400 -200 0 400 600 800 19972004 Developing Asia Euro Area US Middle East and Africa Others and Statistical Discrepancy - - - - $ Billions

14. 14 Long-term nominal interest rates Source: Global Financial Data 0 2 4 6 8 10 12 14 16 18 196019651970197519801985199019952000 UK US Germany Per cent

15. 15 Long-term real interest rates 1 2 3 4 5 6 7 8 9 1985198819911994199720002003 UK 5-10 year real forward (derived from index linked gilts) US 5-10 year nominal forward less survey inflation expectations German 5-10 year nominal forward less survey inflation expectations Per cent Source: Consensus Forecasts, Bank of England calculations

16. 16 Bond spreads 0.0 0.5 1.0 1.5 2.0 2.5 3.0 19981999200020012002200320042005 Percentage points 0 500 1,000 1,500 2,000 2,500 3,000 3,500 19981999200020012002200320042005 Asia Latin America Emerging Europe Basis points Emerging markets sovereign bond spreads Investment grade corporate bond spreads Source: JP Morgan Chase & CoSource: Merrill Lynch Sterling Dollar Euro

17. 17 UK MONETARY POLICY: THE INTERNATIONAL CONTEXT Rachel Lomax Deputy Governor, Bank of England APCIMS Annual Conference 17 October 2005