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Bank of England meeting, 28th June 2017

Fourteen Chamber members gathered on 28th June to hear Bank of England Agent, Graeme Chaplin’s update on the economy and to allow us the opportunity to feedback our own observations to the Bank on the state of our own trading and the local economy.

Graeme started with the observation that given the level of political uncertainty, there has been surprisingly little reaction from the economy. In fact, the Bank has slightly revised upwards their forecast for the economy with 2% GDP growth now expected for the next two to three years.

Retail sales are expected to show a decline due to rising prices (CPI inflation at 2.9% and likely to go higher) but this should be offset by export growth and increased government spending.

Inflationary pressure is a concern and yet monetary policy remains expansionary; under similar conditions in the past the Bank’s response would be to raise interest rates so why not now? Graeme explained that although modest growth in the economy is expected, a very high uncertainty level is attached to this forecast. It is feared that one notch up in interest rates could cause a large shift. Having said that, there are those in the Bank who believe that interest rates should now start to increase, as witnessed by the recent 5 to 3 vote (against raising) on the Monetary Policy Committee.

The other significant concern that the Bank has is that wage inflation will start feeding through into the economy, especially as we now have the lowest unemployment rate since 1975. It is thought that the impact of migrant workers and workers remaining employed beyond traditional retirement dates might be keeping wage inflation down. However, if wage inflation starts picking up then rates will most likely have to increase, probably not until 2018 but if there is a long delay then the jump might be larger.

Graeme was asked if the Bank was concerned about the increase in personal debt. This increase is being driven by motor finance and credit card debt. The Bank is not particularly concerned about motor finance as it considers the risk to be mostly with the car companies. However, there is some concern about the growth in credit card debt which is double digit although not as bad as it was in 2006.

Views from Members

Companies working internationally: although the weak pound makes their goods better value abroad, this is offset to some degree by higher import costs. Companies at the table reported EU customers unsettled by the possibility of duties. Two of the companies present expressed that they were considering starting some degree of operations within the EU either to simplify logistics or to make it easier to transact in Euros.

Retailers: conditions remain as tough as ever with discretionary spending clearly down. In terms of retail units, letting activity has increased a bit but with more deals being done – there are not many long terms leases.

Property, residential: prices in the Banbury area are stabilising due to the amount of new build – the two to four-bedroom house market is saturated. There are few customers in the ‘buy to let’ market because of tax changes. New houses are not really priced for the local labour market. It was observed that it is now very hard to get a residential mortgage due to the many “hoops to jump through”.

Property, industrial and office:
insufficient land is being allocated in the area for industrial use. There is demand for large scale warehousing and small industrial units but no land is available in Banbury. Office stock is reducing, partly due to conversion of office space into domestic property.

Accountancy: workforce more transient than ever resulting in having to “throw money” to keep good people. Young people “zigzag up the scale” from job to job. It was noted that charity and education clients are having a tough time. School funding is reducing in real terms and charities finding increasing competition for donations.

What will happen to Mark Carney?

Will Mark Carney remain as Governor of the Bank? It is thought that Mark will see out BREXIT, probably remaining until summer 2019.