“THIS period of nought per cent
interest will come to an end.”
That was the clear message from
Chris Piper, Bank of England
Agent for Central South East
England, who joined Worthing
and Adur Chamber of Commerce
members for another sold-out
Networking Breakfast.
Mr Piper opened by saying:
“I’m delighted to have been
invited along and to see such a
happy friendly networking event
my update is serious... I hope
I won’t take away from such a
positive – atmosphere!”
He added: “After a low of six or
seven years things are starting to
turn back to normal. Where we
need to be guarded is in a period
of normalisation that then sees
interest rates starting to rise.
“However we are still some
way from the times of five per
cent interest and two per cent
inflation.
“It’s anticipated inflation will
start to move later this year. The
price shocks that occurred last
year will begin to fall out of the
measure.
“One of the effects on inflation
is the supply market. Supply has
been in excess of demand. Many
businesses are now working near
to full capacity. This is easy to
observe in the labour market
figures.
“The level of employment
participation over the last few
years has been significantly
higher – particularly older
employees remaining in the
workforce. Participation is now
fairly stable, but may change as
the economy improves.
“Another puzzle of the past five
years is how weak wage growth
has been. When I look at the
exuberance in this room, it brings
to mind that when in a period of
low inflation, we are inclined to
put up with lower pay rise.
“The risk at the moment is that
lower pay rises will remain for a
prolonged period.
“Pay issues, however, are
now building and this will pick
up further as recruitment gets
harder. This will be crucial when
interest rates do rise.
“For the recovery, there is a
certain dependency on domestic
demand – consumer spending
which contributed to growth of
2.7 per cent in 2014. Most of the
recovery in the economy has
come from people dipping in to
their savings, which is leading
to the savings ratio dropping
(currently below five per cent).
Around six per cent would be a
stable ratio.
“Business investment is
coming through steadily. Credit
conditions and access to finance
take a long time to recover from
financial crises – it is getting
there and when there are better
conditions in economy, there
is better incentive to invest in
equipment, technology and
modernisation. In recent years,
the focus has been more on the
workforce itself.
“Small businesses are now
looking to access crowd funding
and alternative funding... some
even state that banks are out of
fashion. Internationally, recovery
will come through - but more
slowly. At the moment, a stronger
Sterling against a weaker Euro
means export products are less
competitive.”
The Bank of England is
attentive to developments in
Greece; however the bigger
issue is the slowdown in China’s
growth rate, and banks are far
more exposed in the Chinese
market than in the Greek market.
Mr Piper has journeyed around
the South East listening to firms
who share many positive stories
about export, particularly to
China. The Bank is also still
stress testing the UK banking
system to ensure it can weather
any potential crises in the futureincluding
a housing market crash
and a failing Chinese economy.
To close, Chris summarised
that outlook for growth will stay
positive at around 2.5 per cent a
year. “Prepare for rates rising,”
was his closing message.