The South West's man inside the Bank of England ruminated on some economic puzzles with Swindon business leaders on Friday.
Addressing the town's Chamber of Commerce on October 11, Geoff Harding – normally a man with all the answers – admitted there were some elements of the economic picture that were puzzling experts.
In delivering the latest in his regular economic reports and forecasts, the South West's deputy agent to the Bank of England started on a positive note, reminding networkers that there has been “encouraging news from statisticians – the ONS (the Office for National Statistics) have revised the figures up.”
And he said the Quarter 3 figures – which will be published on October 25 – should show an improvement in the economy.
“They will be published on Agincourt Day, so no doubt they'll show we're doing much better than the French,” he quipped. “But we don't expect the economy to go roaring away.”
The speaker then pondered three things about the economy that were puzzling experts.
“When are businesses going to start investing again?” he asked. “There should be more investment taking place than we are seeing. Official data is negative, and has been for the past three years.”
His second puzzle was about jobs and productivity. “More jobs have been created in the private sector, but output is still to revive,” he said.
Surmising that companies may be snapping up talent now in anticipation of economic improvement, Mr Harding said: “That's been the trend for the past 18 months to two years. Our expectation is that as the economy picks up, firms will sweat their investments much harder.”
And his third puzzle was about household incomes and spending. Why, he wondered, was consumer spending up two percent when household incomes – in real terms – are falling.
“It seems to imply people are more content with their financial condition,” he suggested.
Delivering some forward guidance, Mr Harding said the Bank's Monetary Policy Committee had committed not to raising the interest rate – currently 0.5 percent – until the unemployment rate had fallen to seven percent.
The unemployment rate is currently at 7.7 percent, and forecasts show that it could still above seven percent in three years time, said Mr Harding.