Bank's McCafferty indicates that the UK is undergoing a "slow and difficult recovery"

ank of England Monetary Policy Committee member Ian McCafferty has given a speech at Women in Business, held at the Coventry and Warwickshire Chamber of Commerce. Below we've included some extracts, with our emphasis added:


In addition to dealing with their debt levels, consumers have had to contend with a period of elevated inflation, reflecting the rise in import prices following the 25% depreciation of sterling from 2007 to 2009; the surge in energy prices driven by increased political uncertainty following the Arab spring; a rise in food prices caused by unfavourable weather conditions; and the rise in value added tax. And more recently, increases in administered and regulated prices have also added to inflation. As a result, consumers have been faced with a dramatic squeeze in their real incomes, which have fallen by around 5% over four years.

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If we adjust overall GDP growth for the sharp falls in construction and North Sea oil output, the rest of the economy – over 90% of GDP – grew by 1.2% last year. I do not wish to sound complacent; growth of even 1.2% across much of the economy is still at best a slow and difficult recovery. But it is also somewhat removed from the reports of semi-permanent, triple dip, recession.

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Most importantly, the decision to accommodate current above-target inflation is based on a careful analysis of the particular reasons behind the upward pressure on prices.

Much of the upward pressure comes from two sources. First, administered and regulated prices, such as university tuition fees and network charges for energy utilities. The contribution from these prices to CPI is particularly high at present, adding around 1 percentage point to inflation in each of the next couple of years. They are determined by regulatory decisions, rather than the balance of domestic supply and demand, so are relatively insensitive to monetary policy.

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So far, there is little evidence that inflation expectations have become de-anchored, while domestic inflationary pressures, in particular wage growth, remain very subdued.