Informed Choice managing director Martin Bamford attended an Institute of Financial Planning (IFP) meeting in Guildford this evening where the main speaker was Chris Piper from the Bank of England.
Chris is one of twelve Agents for the Bank. As Agent for Central Southern England, Chris plays a vital link between the Bank and the economy. In his words, he and other Agents add a ‘balance of reality’ to the reams of data provided by economists to the Monetary Policy Committee (MPC).
The purpose of the presentation was to deliver an update on the economic outlook of the Bank. Chris talked through market expectation of interest rates, the prospects for economic recovery and the various financial indications they consider to reach decisions on monetary policy.
It was interesting to see how global economy recovery has been happening, although there have been recent signs of this slowing and future growth looks set to be ‘choppy’.
There is apparently some questioning at the Bank at why UK exports have not picked up as quickly as predicted, particularly against the backdrop of weaker Sterling. One possible explanation for this puzzling situation is that many British firms import and export in US Dollars, so weaker Sterling has been of little benefit to their export prospects.
Chris presented some interesting statistics on spare capacity within the UK economy. A big raft of spare capacity opened up during the recession and this has been closing up recently. The MPC thinks this will be enough to deal with inflationary pressures in the medium term.
On inflation, he described the outlook as presented in the recent quarterly Inflation Report and pointed out that there is a risk that if inflation remains higher for too long it could pass into expectations during salary negotiations.
Martin asked Chris for his view on the recent news on stricter capital requirements for banks and whether this would further restrict lending, thereby creating a deflationary environment.
Chris explained that he understood the proposals to be phased over a reasonable period of time so as not to risk shutting down economic recovery. He also understood that British banks are, in the main, already a long way towards repairing their balance sheets so these proposals could have less impact than that on their international peers.
Presentations like this provide valuable insight to the Informed Choice Investment Committee who meet quarterly to debate the economic outlook and also our outlook for the different asset classes, before making tactical adjustments to the various portfolios we use with clients.
