Inflation Report
November 2014
Money and asset prices
Chart 1.1 Market expectations for UK, US and euro-area
interest rates have fallen since the August Report
International forward interest rates(a)
Sources: Bank of England, Bloomberg, European Central Bank (ECB) and Federal Reserve.
(a) The August 2014 and November 2014 curves are estimated using instantaneous forward overnight index swap rates in the fifteen working days to 6 August 2014 and 5 November 2014
respectively.
(b) Upper bound of the target rate range of 0% to 0.25%.
Chart 1.2 Equity prices fell before recovering somewhat
International equity prices(a)
Source: Thomson Reuters Datastream.
(a) In local currency terms, except MSCI Emerging Markets, which is in US dollar terms.
Chart 1.3 Volatility increased temporarily but remains
low by historical standards
FTSE 100 short-term implied volatility(a)
Source: Bloomberg.
(a) Calculated from three-month option prices on the FTSE 100, which reflect the premium that investors are prepared to pay to insure against movements in the index.
Chart 1.4 Sterling depreciated slightly, but remains well
above its trough
Sterling exchange rates
Chart 1.5 Yields on riskier corporate bonds have increased
International corporate bond yields(a)
Source: BofA Merrill Lynch Global Research.
(a) Investment-grade bond yields are calculated using an index of bonds with a rating of BBB3 or above. High-yield corporate bond yields are calculated using aggregate indices of bonds
rated lower than BBB3. Due to monthly index rebalancing, movements in yields at the end of each month might reflect changes in the population of securities within the indices.
Chart 1.6 UK banks’ funding spreads remain low
UK banks’ indicative longer-term funding spreads
Sources: Bank of England, Bloomberg, Markit Group Limited and Bank calculations.
(a)
(b)
(c)
(d)
Constant-maturity unweighted average of secondary market spreads to swaps for the major UK lenders’ five-year euro senior unsecured bonds or a suitable proxy.
Unweighted average of the five-year senior CDS premia for the major UK lenders.
Sterling average of two and three-year spreads on retail bonds, over relevant swap rates.
Constant-maturity unweighted average of secondary market spreads to swaps for the major UK lenders’ five-year euro-denominated covered bonds or a suitable proxy.
Chart 1.7 Household deposits continue to grow despite
low deposit rates
Household deposits and deposit rates
(a) Monthly average of UK-resident monetary financial institutions’ (MFIs’) new sterling household deposit rates.
Chart 1.8 House price inflation moderated a little
House prices and near-term indicators of house prices(a)
Sources: Halifax, Land Registry, Nationwide, ONS, Rightmove.co.uk, Royal Institution of Chartered Surveyors (RICS) and Bank calculations.
(a) Includes the RICS expected house price three months ahead net balance, the RICS new buyer enquiries less instructions to sell net balance, the RICS sales to stock ratio and the three
months on three months earlier growth rate of the Rightmove index of the average asking price trend. All series have been moved forward by three months. The Rightmove index has
been seasonally adjusted by Bank staff.
(b) Latest observation is for August 2014.
(c) Data are for England and Wales. Latest observation is September 2014.
(d) Latest observation is for October 2014.
Chart 1.9 Approvals for homemovers particularly weak
Mortgage approvals by type of borrower
Sources: Bank of England, Council of Mortgage Lenders (CML) and Bank calculations.
(a) An approximation for the split of Bank of England mortgage approvals for house purchase has been calculated using the share in CML mortgage advances of homemovers, first-time
buyers and buy-to-let purchases. CML data are non seasonally adjusted.
Chart 1.10 Mortgage interest rates remain low
Average quoted mortgage interest rates(a)
(a) Data are non seasonally adjusted.
(b) Sterling-only end-month average quoted rates. The Bank’s quoted interest rates series are weighted averages of rates from a sample of banks and building societies with products
meeting the specific criteria (see www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/household_int.aspx).
(c) On mortgages with a loan to value ratio of 75%.
Chart 1.11 Household loan growth continues to increase
Loans to individuals
Chart 1.12 PNFC lending outside the real estate sector
continues to pick up
Growth in the stock of lending to the UK real estate sector and
other businesses(a)
(a) Lending by UK MFIs. Rates of growth in the stock of lending. Non seasonally adjusted. For details on the series included in the swathes see tab ‘Chart 1.1 appendix’, available at
www.bankofengland.co.uk/publications/Documents/other/monetary/lendingtoukbusinessesandindividualsoctober2014.xls.
(b) From January 2011, data are on the SIC 2007 basis. Changes in the SIC codes have led to some components moving between industries, which may affect growth rates in 2011.
Chart 1.13 PNFC money growth remains relatively
strong
Sectoral broad money(a)
(a) Monthly data unless otherwise specified.
(b) Quarterly data. Intermediate other financial corporations (OFCs) are: mortgage and housing credit corporations; non-bank credit grantors; bank holding companies; securitisation
special purpose vehicles; and other activities auxiliary to financial intermediation. Sterling deposits arising from transactions between banks or building societies and other financial
intermediaries belonging to the same financial group are also excluded, quarterly prior to June 2010 and monthly thereafter.
(c) M4 excluding intermediate OFCs, quarterly prior to June 2010 and monthly thereafter.
Tables
Table 1.A Monitoring the MPC’s key judgements
Table 1.B Bond market issuance strong in Q3
Net external finance raised by PNFCs(a)
(a)
(b)
(c)
(d)
(e)
Includes sterling and foreign currency funds.
Non seasonally adjusted.
Includes stand-alone and programme bonds.
As component series are not all seasonally adjusted, the total may not equal the sum of its components.
Sterling net lending excluding the effects of securitisations. Percentage change on a quarter earlier.
The fall in long-term interest rates in 2014
Chart A Longer-term interest rates have fallen
internationally during 2014
Five-year, five-year forward nominal interest rates(a)
Source: Bloomberg.
(a) Derived from the Bank’s government liability curves.
Chart B Most of the fall in nominal forward rates can be
accounted for by lower forward real rates
Contribution to the decline in five-year, five-year forward nominal
interest rates since the start of 2014(a)(b)
Sources: Bloomberg and Bank calculations.
(a) Change between 31 December 2013 and the fifteen working days to 5 November 2014.
(b) Derived from the Bank’s government liability curves. The contribution of real rates and implied inflation expectations to the change in nominal rates calculated using inflation swap rates.