You might think that the ups and downs of the economies of Asia are a pretty distant irrelevance to our everyday lives here in Yorkshire and the Humber.
However, developments in the global economy are a common topic of conversation when I meet with contacts in the region’s business community to discuss the issues facing their companies.
And I’m sure that they will figure prominently in the meetings and functions we are holding with our Deputy Governor, Ben Broadbent, who yesterday began a two-day visit to Leeds and York to hear from our contacts himself.
The implications of the recent slowdown in emerging markets also feature in the Bank of England’s latest Inflation Report – our quarterly assessment of the outlook for the UK economy – which was published last week.
At a presentation on the report’s main findings at Bradford University yesterday, I explained how, although direct trade links between the UK and China are quite small, China still accounts for about 10 per cent of world trade and is an important market for businesses based in Europe, many of which are in turn supplied by companies in regions including Yorkshire and the Humber.
China is also an important source of demand for commodities, so events there can affect the prices of a range of key raw materials such as oil and foodstuffs.
Whilst this is good news for many Yorkshire and the Humber companies we talk to who are benefiting from lower costs, we have also seen recently how this can also be a huge challenge for those in sectors such as the steel industry which has a significant presence in Yorkshire, particularly around Sheffield.
So it’s little surprise that the Bank’s Monetary Policy Committee (MPC), which last week decided to hold Bank Rate at 0.5 per cent, takes a keen interest in developments not just in the domestic economy, but also further afield.
The recent slowdown in Chinese growth – albeit to the still-high level of more than 6 per cent – has been accompanied by a further contraction in other large economies such as Russia and Brazil.
So while growth in advanced economies, such as the euro area, has continued and broadened, the committee now expects global growth as a whole to be more modest than at the time of its last Inflation Report in August. However, this foreign weakness is balanced by domestic strength.
Consumer confidence is firm, households are benefiting from the strongest growth in real incomes since the financial crisis, and businesses’ investment intentions remain solid. All of which means the Bank’s expectations for UK growth are robust at around 2.5 per cent this year.
Our latest Agents’ Summary of Business Conditions – the monthly review of the information we gather from our contacts around the country to help inform the Bank’s policymakers about what is going on in the economy – supports this picture.
And that sentiment is reflected amongst many of our Yorkshire and Humber contacts – for example the hotels and other leisure outlets around Leeds that benefitted from the recent Rugby World Cup coming to the city.
Looking ahead, MPC predicts that growth will pick up a little towards the middle of next year, supported by the improved ability of businesses and households to access credit.
However, inflation – as measured by the Consumer Prices Index (CPI) – is expected to remain weak into next year.
Again, we have to look beyond our own shores for an explanation for this persistent weakness in inflation: four-fifths of the gap between September’s -0.1 per cent CPI number and the Bank’s 2 per cent inflation target was accounted for by falls in global energy and food prices and the lower cost of imports into the UK.
While we watch current levels of inflation closely, it is the MPC’s job to return inflation to 2 per cent in around two years. It is the judgement of the MPC that, in order to achieve that target in a couple of years’ time, when the time comes to raise rates it’s likely that only a gradual and limited increase will be necessary.
Of course, the actual path of Bank Rate in future will depend on what happens in the economy over the coming months and years. And, as we’ve seen in recent months, that won’t just be determined by events close to home.
Juliette Healey is Agent for the Bank of England in Yorkshire and the Humber. You can read the Inflation Report and latest Agents’ Summary of Business Conditions in full at www.bankofengland.co.uk and find out more about the Bank’s Agency network here.
The consent of society
The Bank of England turned the spotlight on the role of financial markets in our society.
Our Open Forum brought together all kinds of stakeholders – from those who work in financial institutions to members of the public who entered a ballot to secure a place in the audience at the main event at the Guildhall in London.
We also held supporting events in other parts of the UK for our contacts outside of London and invited those who couldn’t be there in person to join in the debate via social media. Why did we do this? Because financial markets affect us all. It is not just that they can go wrong – as recent history has shown. But they can make a positive difference too.
To fulfil this role, markets need ‘social licence’: the consent of society to innovate and grow.
Yesterday’s debate was an important part of delivering that – but it will be an ongoing process. You can relive some of the highlights from the event on YouTube or by searching #BoEOpenForum on Twitter.