Britain still growing fast

By THIS IS MONEY
Updated:

 

Britain's trend growth rate is no lower than 2% and could be as high as 3%, according to DeAnne Julius, an independent member of the Bank of England's monetary policy committee. This compares with the Bank's official estimate that puts trend growth between 2.25% to 2.50%.

Julius, the arch-dove of the bank's nine-member rate-setting committee, said in a speech to the Economics and Business Education Association that while Britain's economy is therefore 'probably' still growing above trend, growth is likely to have peaked in the fourth quarter of last year and is set to fall back this year.

Turning to the exchange rate, she said the Bank had in the past been 'badly wrong' with its sterling forecasts. 'This is one reason why actual inflation is presently below target,' she said, adding that there is no clear reason why one should expect the pound to depreciate significantly if the market believes the UK has moved to a low-inflation environment.

Julius said that aside from the high exchange rate, other downward influences on inflation are likely to come from increased global competition and technological advances.

She said she sees the main upside threat to the Bank's inflation target coming from the tight labour market, and suggested that average earnings growth of 6% is unlikely to be compatible with the Bank's 2.5% inflation target indefinitely, although she said wage settlements have been considerably more benign than headline average earnings growth.

Julius added that while the latest labour market statistics were 'worrying', they were also 'a puzzle'.

She said that given the recent inflow into the labour market of previously inactive people, it is difficult to gauge just how tight the market now is, although she believes unemployment is now close to its natural rate, thereby suggesting that there is little, if any, scope for further falls in the jobless total.

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