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▀ Demographic changes have played a crucial role in pushing savings rates up and real rates down in the advanced economies. Despite some voices to the contrary, we think such forces will remain in place for many years to come. ▀ For such a predictable process, it's amazing that the economic implications of ageing are so hotly debated. Ageing affects everyone's lifetime savings decisions and has an impact on macroeconomic variables through several direct and indirect channels, the strength of which varies over time. ▀ The impact of ageing on savings depends on interpreting two distinct long‐term drivers. On the one hand, aggregate savings may start to fall as the baby‐boomer “bulge” in advanced economies transitions from the peak period of saving to the phase of lower saving in retirement. ▀ On the other hand, rising life expectancy should lead individuals to save more during their working lives or wait longer to retire. Greater labour market participation by those close to the official retirement age suggests that rising life expectancy is already leading many to remain in the workforce for longer – a trend that is likely to continue. ▀ Accounting for ageing and rising life expectancy together, we find there will be no major decline in savings even as the elderly's share of the population rises further. ▀ The impact on future real interest rates will, if anything, be negative. Comprehensive studies have reached a similar conclusion, taking into account the impact of demographic changes on savings, investment and other factors affecting real interest rates. ▀ Ageing populations may be complicating the escape from low global inflation. Crosscountry evidence suggests older populations may prefer lower inflation. As societies in advanced economies continue age, there is a downside risk to the long‐term outlook for inflation and bond yields. [ABSTRACT FROM AUTHOR]

Presents discussion papers on the European economy. `Unemployment Dynamics in the UK,' by S.G.B. Henry and J. Nixon; `Bootstrapping Sequential Tests for Multiple Structural Breaks,' by A. Banerjee, S. Lazarova and G. Urga; `International Linkages in Short and Long-Term Interest Rates,' by G.M. Caporale and G. Williams.

Presents a list of discussion papers on world economy. `A Quarterly Model of the Russian Economy: Estimating the Effects of Devaluation,' by E. Gavrilenko, Henry SGB and J. Nixon; `On the Identification of Cointegrated Systems in Small Samples: Practical Procedures With an Application to UK Wages and Prices'; `Testing the Order of Integration in the UK Employment,' by LA Gil-Alana.

Presents several discussion papers on economics. `Testing the Order of Integration in the UK Unemployment,' by L.A. Gil-Alana; `Bond Markets and Macroeconomic Performance,' by G.M. Caporale and G. Williams; `A Dynamic Wage--Price Model for the UK,' by J. Greensdale, S.G.B. Henry and R. Jackman.

Presents a list of discussion papers from the Centre for Economic Forecasting.

Presents a list of discussion papers of London Business School's Centre for Economic Forecasting in London, England for 1997 and 1998.

Presents several discussion papers on economic forecasting. `Modelling the US Economy'; `Evaluating the Gains to Cooperation in the G-3'; `Cointegration and Predictability of Asset Prices'; Recent Developments in the Econometrics of Panel data and the Implications of Non-Stationary.'

Presents discussion papers on the economy of Europe. `International Interest Rate Linkages: A Time Varying Parameter Approach,' by G. Williams; `Unemployment Dynamics in UK,' by S.G.B. Henry and J. Nixon; `Estimation of Fractional Arima Models for the UK Unemployment,' by L.A. Gil-Alana.

Presents a summary of several research papers of London Business School's Centre for Economic Forecasting in London, England, including `Monetary Union: The Ins and Outs of Strategic Delegation,' by Paul Levine and Joseph Pearlman.

This article explores the potential impact of artificial intelligence (AI) on global productivity and economic growth. While some experts predict a significant boost from AI, historical analysis suggests caution. The article highlights that not all new technologies have lived up to their initial promise, and even when they have, the impact on overall growth has sometimes been modest and delayed. The diffusion of AI throughout the economy may take time and require substantial investments. While AI may lead to productivity growth in certain sectors, its widespread adoption and large-scale innovation may take time, resulting in narrow economic gains. The article also discusses the lack of significant productivity improvements despite recent advancements in areas such as mobile phones. It references a study on the productivity impact of generative AI and a paper on productivity growth in the Industrial Revolution. The author mentions Lord Keynes' speculation in the 1930s about the rate of technical progress leading to a life of ease, but acknowledges that this has not been realized. Overall, the article provides a cautionary note regarding the relationship between AI and productivity growth. [Extracted from the article]

Introduces the discussion papers submitted to the Center for Economic Forecasting of the London Business School in London, England from 1996 to 1998. `Weak Exogeneity and Joint Normality,' by Caporale and Pittis; `International Economic Policy Coordination: A Brief Survey of the Literature,' by Caporale; `Causality and Forecasting in Incomplete Systems: Evaluating Potential Losses,' by Caporale and Pittis.

Presents several research papers on economic development. `Interpreting the CBI Industrial Trends Survey,' by Paul Robson and Andrew Sentence; `Measuring the German Output Gap Using Unobserved Component Models,' by Michael Funke; `Cointegration and Predictability of Asset Prices,' by Guglielmo Maria Caporale and Nikitas Pittis; `Aggregate Demand and Aggregate Supply in Germany and the United Kingdom,' by Michael Funke.

Presents abstracts of several economic researches. 'A Model of the Developed World Economy,' by S. G. B. Henry, C. Lindh and G. A. Williams; 'A Consistent Approach to Modelling Dynamic Factor Demands,' by S. Hall and J. Nixon; 'Modelling Policy Rules: A Fully Model-Based Approach,' by S. Hall, S. G. B. Henry and G. A. Williams.

Presents several economic research papers. `Inflation Targeting: Revisiting the Delegation and Coordination of Monetary Policy,' by S.G. Hall, S.G.B. Henry and J. Nixon; `Testing Fractional Integration With Monthly Data,' by L.A. Gil-Alana; `Hausman Tests for Seasonal Unit Roots in Presence of MA(1) Errors,' by Patricio Aroca-Gonzales and Giovanni Urga.

Presents an overview of research papers from the Centre for Economic Forecasting. 'Hausman Tests for Seasonal Unit Roots in Presence of MA(1) Errors,' by Patricio Aroca-Gonzalez and Giovanni Urga; 'Determinants of Productivity Growth: Some International Evidence' and 'Wage Differentials, Employment, and Globalization: Evidence From an International Panel,' by Guglielmo Maria Caporale, Mohammad Fazal Haq and Joseph Pearlman.

▪ The coronavirus is having a very large short‐term negative impact on world growth. But the medium‐term growth outlook is more uncertain. Much depends on the policy response ‐ a strong and well‐designed response could contain the medium‐term output losses, but large and enduring damage is a risk.▪ Growth patterns after significant GDP declines vary. Historical evidence points to large upfront effects from pandemics and natural disasters, but the medium‐term outcomes are mixed, with policy responses a crucial determinant. Longer recessions and financial crises tend to lead to weaker medium‐term growth.▪ The coronavirus may trigger annual GDP declines among the worst seen in the last 100 years. Economies can bounce back sharply after such declines, but our analysis suggests output losses also endure in a significant number of cases.▪ The US interwar experience shows the danger of allowing financial distress to snowball and exacerbate GDP declines. The weakness of medium‐term growth after the global financial crisis confirms the long‐term impact of such distress.▪ A key risk for the medium term is that firms and/or households react to the coronavirus recession and disruption by raising savings, accelerating a shift toward 'Japanification' of major economies.▪ Our baseline forecasts envisage moderate medium‐term output losses due to coronavirus, in part reflecting rapid and large‐scale policy interventions. But uncertainty around this forecast is significant and considerable variation is possible across economies. [ABSTRACT FROM AUTHOR]

There is widespread disagreement about the role of housing wealth in explaining consumption. However, much of the empirical literature is marred by poor controls for the common drivers both of house prices and consumption, such as income, income growth expectations, interest rates, credit supply conditions, other assets and indicators of income uncertainty (e.g. changes in the unemployment rate). For instance, while the easing of credit supply conditions is usually followed by a house price boom, failure to control for the direct effect of credit liberalisation on consumption can over-estimate the effect of housing wealth or collateral on consumption. This paper (Janine Aron, John Muellbauer and Anthony Murphyi, October 2006) estimates an empirical model for UK consumption from 1972 to 2005, grounded in theory, and with more complete empirical controls than hitherto used. [ABSTRACT FROM AUTHOR]

Presents abstracts of several studies on economics published by the London Business School's Center for Economic Forecasting. "The Performance of UK Manufacturing," by Paul Temple; "What Happens When Inflation Targets Change?," by Peter J. Stemp; "Unemployment and the Capital Stock: Modelling the Supply Side of the UK Economy," by James Nixon and Giovanni Urga.

Presents several abstracts of studies on world economy. `A Quarterly Model of the Russian Economy: Estimating the Effects of a Devaluation,' by E. Gavrilenkov, Henry SGB and Nixon J.; ` `Semiparametric Estimation of the Fractional Differencing Parameter in the UK Industrial Production Index,' by Gil-Alana LA; `Hausman Tests for Seasonal Unit Roots in Presence of MA(1) Errors,' by Patricio Aroca-Gonzalez and Giovani Urga.

Both unemployment and non-employment in Great Britain fell steadily after 1993. The ratio of jobs to the working age population— the employment rate— rose. But the increasing regional dispersion of employment rates remains a puzzle. By 2000–01, this dispersion was close to its 1974 and 1985 peak levels, though it has narrowed since 2001. This paper byJohn Muellbauer&Gavin Cameron1 examines this puzzle in the context of different measures of the employment rate and examines what we know and what we do not know about what drives relative employment rates across the British regions. It summarises the findings from an econometric study and examines the outlook for relative employment across the British regions. [ABSTRACT FROM AUTHOR]

▪ The BoE has updated its guidance for when it will begin to reverse asset purchases. If financial markets are functioning normally at that point, and the future path of interest rates is clearly signalled, the central bank thinks the macroeconomic consequences of quantitative tightening (QT) should be small.▪ This seems a reasonable premise. If so, decisions around QT should not greatly affect the pace at which the official interest rate rises and, relatedly, the space to cut borrowing costs in the event of a future shock.▪ But even allowing for a muted effect from QT, and scope to take Bank Rate negative, room to support the economy with rate cuts looks like staying very limited for years to come. So QE‐to‐QT is unlikely to be a one‐way street. [ABSTRACT FROM AUTHOR]

HM Treasury produced its long-awaited assessment of the five economic tests in June, having signalled the basic decision months in advance. The Treasury sees important impediments to adopting the Euro in UK housing and credit markets, and makes some proposals for further investigation and policy. In this paper, John Muellbauer considers the policy options. [ABSTRACT FROM AUTHOR]

Economic conditions exert a strong influence on regional migration. On the one hand, strong labour market conditions, as exemplified by low unemployment rates and high earnings, draw migrants into regions. On the other hand, strong housing market conditions can prevent movement since commuting may often be an alternative to migration. This can be thought of as giving rise to a migration equilibrium where high house prices choke off migration caused by strong labour market conditions. Expected capital gains in housing, however, can offset high levels of house prices, an effect ignored in previous literature. Migration can also be influenced more directly by the availability of housing relative to population without this being mediated through prices. This paper, by Gavin Cameron, John Muellbauer and Anthony Murphy, presents evidence on inter-regional net and gross migration between the regions of England and Wales that is broadly in accord with these expectations. [ABSTRACT FROM AUTHOR]

In common with other developed countries, the UK has seen the relative importance of the service sector grow, accounting for an ever greater share of employment and output— a trend that has accelerated over recent decades. At the same time, globalisation means that international trade is of increasing importance as a share of UK expenditure. With the traded goods sector dwindling in importance, what are the implications for the current account? This paper examines the changing structure of the UK economy and prospects for the current account. Although the current account is expected to remain in deficit for the foreseeable future, the size of the deficit is likely to remain manageable as growing surpluses from trade in services and investment income offset a widening goods deficit. [ABSTRACT FROM AUTHOR]

The liberalisation of credit constraints in the 1970s for UK consumers has had important implications for the housing market and consumer spending. This paper by John Muellbauer1 examines the factors that have driven soaring consumer debt and house price levels; in particular those observed since the mid-1990s. By relying on recent econometric evidence and trends in credit availability, real income per head, nominal and real after tax mortgage rates, measures of perceived risk and broad demographic trends, it also analyses the prospects for house prices, mortgage debt and unsecured debt over the coming years. The outlook is for a‘soft landing’ in the housing market and associated declines in the rate of growth of consumer debt, which, although probably not smooth, does suggest the underlying situation is more benign and less crisis-prone than it was in 1988–89. [ABSTRACT FROM AUTHOR]

For nearly two years the Japanese economy has grown significantly faster than commentators expected, raising the question of whether the country has finally broken out of its long economic malaise. This article by Simon Knapp examines recent developments to see whether this recovery is sustainable. It argues that over the last year the recovery has broadened out beyond merely the export sector, although there are good reasons to believe that growth as measured by GOP has been overstated and that many serious structural problems remain. Business investment has surged on the back of rising profitability and an improved labour market has helped lift consumer confidence. At the same time the paper recognises the importance of China's boom in stimulating the Japanese economy over the last two years, and estimates that this factor may have boosted the level of GDP by between 1 to 2%. With Chinese growth now moderating to more sustainable levels, export growth will slow over the next year or so. However, domestic demand should now be strong enough, in the absence of major external shocks, to generate GDP growth of around 1.5 to 2% per annum in the medium term; a respectable figure given the country's falling population. [ABSTRACT FROM AUTHOR]

The Chancellor has asked Professor David Miles to examine the UK market for longer-term fixed rate mortgages. This paper by Adrian Cooper, which is part of a study commissioned by the Miles Review, presents the results of a series of simulations using the OEF Model of the UK economy to investigate the contribution of the housing market to macroeconomic volatility and the implications of changing the structure of mortgage finance from the current variable rate system linked to short-term interest rates to a fixed rate system linked to long rates. The main findings are that the housing market has been a contributor to past volatility in the UK economy, and that moving to a fixed rate structure would reduce the impact of a change in interest rates on key macroeconomic indicators. [ABSTRACT FROM AUTHOR]

A much clearer understanding is needed of the forces driving the current upsurge in the mortgage market and of the key factors contributing to the exceptional growth of mortgage indebtedness. It would then be easier to judge whether the widely-expected downswing in mortgage lending will be reasonably limited and gradual, or more pronounced and protracted. This paper, by Richard Talbot, develops an appropriate analytical framework and model that traces the composition of incremental mortgage borrowing over the period since the mid-1980s. Estimates have been compiled for the various elements of additional borrowing using data from the Survey of Mortgage Lenders and the Bank of England back to 1993, and other statistics on the earlier composition of bank approvals and building society advances. This analysis of the debt aggregation process suggests that, at the level of the individual household, people simply will be unable, and indeed unwilling, to go on absorbing the relatively large amounts of incremental debt implied by many medium-term forecasts for mortgage lending. [ABSTRACT FROM AUTHOR]

This paper, prepared for the No Campaign, uses the OEF Global Macroeconometric Model to assess the impact of the housing market on the UK's convergence with the Eurozone. The OEF Model provides the ideal framework for such analysis, as it incorporates a detailed system for forecasting UK house prices, transactions, mortgage borrowing and their interaction with consumer spending and the wider economy, within the context of a model of the Eurozone economy. Our analysis suggests that, if the government were to wish to take the UK into EMU, action to reduce the impact of changes in interest rates on the housing market would be beneficial in improving the UK's economic stability. [ABSTRACT FROM AUTHOR]

Her Majesty's Treasury is due to report in June 2003 on the economic case for the UK adopting the Euro. One criterion concerns the extent of economic convergence between the UK and the European Union countries. Differences in financial, credit and housing institutions between countries present one important subset of constraints to sustained convergence (Maclennan et al, 1998) - largely neglected in the economic literature on common currency areas. These types of differences create tension within the Eurozone. Empirical evidence supporting these concerns has emerged in signs of overheating in the Netherlands, UK and some of the fringe economies, and in the relative stagnation of Germany and Italy. The UK's buoyancy, however, is accompanied by serious economic imbalances, with consequent risks of instability. These would be exacerbated should the UK be prematurely locked into an exchange rate and interest rate regime unresponsive to domestic conditions. There is much to learn from European experience: from Germany and Italy, on the consequences of illiberal economic structures; from The Netherlands, on some of the risks of liberal credit markets; and from Denmark, with a liberal credit market but rational property taxation. In this paper, John Muellbauer argues that convergence does not have to be fully achieved, if there is a counterbalancing policy instrument to mitigate some of the effects of these slow-to-dissipate differences. Specifically in the UK, a reformed system of property taxation would contribute greatly to long-term stability and the preservation of economic balance. [ABSTRACT FROM AUTHOR]

It is widely perceived that credit conditions for UK consumers, particularly in the mortgage market, have been radically liberalized since the 1970s. The implications for the housing market and consumer spending have been important. This article by John Muellbauer draws on a 1997 paper by the author which examined data from the Survey of Mortgage Lenders to learn, from information about loan-to-value ratios of first-time buyers, classified by region, about changes in mortgage credit conditions. By controlling for economic and demographic influences on credit conditions, a single time-varying index of mortgage credit conditions was extracted from these SML data. This index rises in the 1980s, peaking towards the end of the decade. It retraces part of its rise in the early 1990s before rising again by 1995 to a level not far below the previous peak. The article considers whether more recent data suggest a further liberalisation of mortgage credit conditions. It draws on joint research with others to discuss possible implications for consumer spending, house prices, the volume of property transactions and mortgage defaults. [ABSTRACT FROM AUTHOR]

The potential for a departure from the EU to undermine the UK's attractiveness as a location for Foreign Direct Investment (FDI) is often cited as one of the key risks were the UK to leave the EU. In weighing up the threat to FDI posed by 'Brexit' we assess the net gain from inward investment and the role played by EU membership in attracting FDI., In theory, FDI benefits the economy via lower interest rates, higher wages for workers and 'spillover' benefits boosting economy-wide productivity. But the evidence for these benefits is ambiguous. And FDI has potential drawbacks. These include an adverse effect on the tradeable sector, reflected in a wider current account deficit, the potential to 'crowd out' investment by domestic firms and the fiscal cost of subsidies paid to inward investors., That almost half of FDI in the UK comes from other EU countries suggests that EU membership is not the only driver of foreign investment in the UK. Other factors include the UK's business friendly environment, as reflected in global competitiveness surveys, and a relatively deregulated labour market. Of perhaps most importance is the lure provided by the UK's large domestic economy. 80% of FDI in the UK is in sectors where sales to the EU account for less than 10% of total demand., However, FDI in manufacturing does look vulnerable to Brexit, given the importance of the EU market. Granted, manufacturing accounts for a modest share of UK FDI. But to the extent that FDI boosts productivity, a loss of inward investment in this sector is likely to come at a disproportionate cost., Our modelling suggests that in a worst case Brexit scenario, the stock of FDI could ultimately be 7% lower relative to the UK remaining in the EU, potentially knocking around ½% off the level of GDP. [ABSTRACT FROM AUTHOR]

A number of factors underpin the Coalition's fiscal strategy, the most important being the use of rules (for the structural current deficit and net debt) and the creation of a new 'institution', the OBR, to monitor it. According to the Chancellor, this combination would ensure the government's 'credibility and avoid elevated sovereign default premia and foster sustainable recovery.', It is already clear that the limited degree of independence for the OBR is a major shortcoming but there is another, more serious, problem in the Treasury's belief that the deficit ratio can be reduced by making spending cuts as clear failures by the government to achieve its fiscal targets on the deficit have shown. Such a failure is consistent with the results of research over the last decade which gives strong support to the view that fiscal multipliers are much larger than unity., The length of the downturn, the repeated large failures to hit deficit reduction targets and now the source and nature of the recovery show that his plan is failing. The former was predictable from the evidence just noted. In turn, the recovery relies on the surge in consumer demand following the easing of credit conditions for house purchase and points to a switch to a 'Plan B'. It also demonstrates that the Chancellor could have brought about recovery very much earlier had he stimulated demand on taking office not reducing it with his self-imposed austerity measures. He could even have stimulated demand to a much more constructive long-term effect by increasing public investment. [ABSTRACT FROM AUTHOR]

The source of the present recession in the UK and elsewhere was the world-wide financial crisis that followed a generalised collapse in inter-bank and bank lending to the private sector, which led to huge falls in spending and a collapse in output in most developed countries. By effectively ignoring this amplified credit effect, supply-side explanations place their emphasis instead on changes to the pattern of productivity shocks, downgrades in risk premia or shifts in aggregate production functions. Our review of some high profile examples of supply-side accounts suggests that the evidence is against them and a world-wide fall in aggregate demand seems a more likely explanation. Nonetheless, the supply-side view still appears to be the approach preferred by the Treasury suggesting, as it does, that present levels of slack in the economy are small. The Coalition's main response to the recession here has been fiscal consolidation, based on the claim that the jump in the fiscal deficit was not due to the world recession and was instead caused by Labour's profligate spending. Also, the Coalition's strategy treats the two problems; that of ensuring recovery and that of achieving a sustainable debt ratio in the longer term as if they were the same problem. Not only are these two claims wholly wrong, the risks they pose to the economic future of the country are very large and of long duration. It is already evident that the 'cuts now' programme has retarded the recovery as it assumes, incorrectly, that the deficit can be reduced by making cuts to spending without these having adverse effects on economic growth. And its precipitate rush to cut Welfare and non-investment Education budgets are visibly leading to worse, not better, efficiency outcomes in these key sectors, in spite of government claims to the contrary. A low wage, low productivity economy seems a highly likely outcome of the present policy over the medium to longer term. [ABSTRACT FROM AUTHOR]

Spreads between government bond yields in the Eurozone periphery and Germany have fallen to the lowest levels in 3 to 4 years. There are two major factors behind this. The first is the speech by ECB President Mario Draghi on 26 July 2012 promising 'to do - within its mandate - whatever it takes' and the ECB's Outright Monetary Transactions initiative of summer 2012. This has been successful in eliminating fears of an imminent Eurozone break-up. The second factor is the improvement in economic fundamentals in the periphery countries, particularly in Ireland, Spain and Greece. Previous econometric work on the role of economic fundamentals at the country level has focused almost entirely on government debt and government deficit to GDP ratios. The true fundamentals have been obscured by market panics and by the fact that markets really only took full account of these fundamentals from the end of 2010. Before the middle of 2007, markets ignored the build-up of stresses between Eurozone countries. Once amplification of perceived risks by market panics and the shift from inattention to full market attention are taken into account, a far more nuanced picture emerges of what country fundamentals really matter for sovereign spreads. In addition to excessive government debt, deteriorating competitiveness, excessive private debt, and housing market crises spilling into banking systems, have been especially prominent in the countries at the periphery. In Ireland and Spain, declining relative unit labour costs and the fading of the housing crisis have recently been important in narrowing spreads against Germany. The econometric model also suggests that good news on relative growth and inflation help narrow spreads. Prospects for further narrowing of spreads for Greece and especially for Spain look good. Once the current bout of falling spreads is over, the underlying picture suggested by the estimated model is less good for Ireland, Italy and Portugal and for the euro area core economy, France. In all four cases, the government debt to GDP ratio has been deteriorating, and for France and Italy, competitiveness has not improved significantly. For France, another factor is the rising level of the private debt to GDP ratio. For Ireland, scope is limited for the effect on the spread of further improvements in competitiveness and housing market recovery. [ABSTRACT FROM AUTHOR]

Overview: Covid cases surge, worsening Q1 slowdown ▀ Although some of the initial worst fears about Omicron have proved unfounded, the unexpectedly large surge in global Covid‐19 cases is causing more cautious behaviour by individuals and greater disruption to businesses than envisaged. We have cut our Q1 GDP forecast again and now expect world GDP growth of 4.2% in 2022, down from 4.3% a month ago and the 5.8% estimated for 2021.▀ There remain plenty of unknowns regarding the Omicron variant and its health impact. But the evidence from economies such as South Africa, the UK and Denmark suggests that the Omicron wave is likely to be associated with much smaller rises in hospitalisations than earlier Covid waves. And for now, our initial assessment that there would only be a modest reimposition of mobility restrictions is correct.▀ Nonetheless, the rise in global Covid cases to more than double the previous peak has exceeded expectations of a month ago by a large margin and points to greater economic damage via increased voluntary social distancing and disruption to businesses from staff having to self‐isolate. In response, we have lowered global GDP growth further in Q1.▀ As with previous Covid waves, we expect activity to rebound quickly when cases start to fall back, so the downward revision to the outlook in Q1 will be largely offset by a bigger bounce in Q2. Nonetheless, the weak start to the year will dampen overall 2022 growth slightly.▀ Meanwhile, greater disruption in the near term — especially in China where a zerotolerance approach to Covid continues to be pursued— points to slower normalisation of supply‐chain pressures and potentially a slower transition of consumer spending from goods back to services. Partly due to this, we have lifted our 2022 global CPI inflation forecast by 0.3pp to 4.5%. But inflation is still expected to fall sharply over the course of year, limiting the need for aggressive monetary policy tightening. [ABSTRACT FROM AUTHOR]

▪ After enduring one of the deepest downturns in 2020, the UK has enjoyed one of the strongest rebounds in 2021. The 'easy' gains from reopening are behind us, and unprecedented policy support is being withdrawn, so the recovery is now entering a tougher phase. But provided the Omicron Covid variant doesn't result in more serious restrictions, we're sticking to our upbeat view of the UK's prospects for 2022 based on four key themes shaping the outlook.▪ How consumers and firms treat their excess savings. A lack of spending opportunities has resulted in UK households accumulating excess savings worth 10% of income during the pandemic. Behaviour has been slow to change, but we still expect consumers to dip into this cash pile to fund spending this year. If they don't, squeezed household finances could bring the consumer recovery to a halt. Firms have also accumulated big cash piles and, prompted by the tax super‐deduction, we expect they'll spend some of it.▪ Inflation fears will calm. Another large rise in the energy price cap and the restoration of the VAT rate for the hospitality sector to 20% are likely to push CPI inflation to almost 6% in April 2022. But we expect it to slow sharply thereafter. There's little evidence of underlying pressures building, commodity prices should fall back, and large, negative, base effects will come into play.▪ Markets will be disappointed by the pace of rate hikes. Market pricing implies that Bank Rate will be 1% at the end of 2022. This looks too aggressive. With inflation concerns set to ease, we expect Bank Rate to end 2022 at 0.75%.▪ The threat of a UK‐EU trade war will linger. Negotiations on changes to the Northern Ireland protocol are ongoing. But even if they prove successful, the threat of an UK‐EU trade war is unlikely to go away given the prevalence of strong ideological views in influential parts of the Conservative party. [ABSTRACT FROM AUTHOR]

This article questions whether the Monetary Policy Committee (MPC) of the Bank of England should introduce a second phase of asset purchases, so-called QE2. It indicates the reasons for the move of the bank to resort to quantitative easing, including the impact of interest rates at 0.5 percent on conventional monetary policy options. It also discusses the creation of money supply growth by the asset purchase scheme.

The article discusses the U.S. housing downturn and the credit crunch affecting economic activity, which were covered at the Federal Reserve's Jackson Hole Symposium. The underlying model for consumer spending implies a long-run solution for the log ratio of consumption to non-property income. Table showing the contributions of the credit conditions index and the ratio of net liquid assets to incomes is presented. The assumption that the scale of the decline in house prices is not model based rests on beliefs about further declines in interest rates.

The article contemplates on the risks involved in global financial markets. It is noted that evidence suggests that benign financial market conditions like risk spreads and declining financial market volatility are linked mostly to cyclical rather than structural factors, notably strong world growth and high corporate profitability. One risky area is the leveraged buyouts (LBO) market, wherein LBO financing is now higher as a proportion of gross domestic product (GDP) than its previous peak in the 1980s, leverage ratios are increasing and activity looks vulnerable to tighter global liquidity.

Provides an overview of policies for economic growth and employment in the European Union as of October 2005. Background on the Lisbon Agenda; Relative position of Western Europe with regard to economic growth and job; Details of an analytical framework linking growth and jobs.

In this article, Geoff Meen discusses patterns of economic segregation in England. Despite the emphasis that the government places on reducing segregation, patterns have, in fact, remained remarkably constant over, at least, the last twenty years. Dynamic changes in housing markets and migration over time help to explain these patterns, and evidence is presented on the extent to which house prices in certain local authorities have been under- or over-valued. The analysis also shows that, at the local level, housing markets exhibit non-linear behaviour, which hinders the effectiveness of housing policy in the most deprived areas and adds to economic segregation. [ABSTRACT FROM AUTHOR]

Spurred by the political debate in the US and several high-profile corporate moves, "offshoring" has become a lively topic of discussion. This paper by Grant Colquhoun, Keith Edmonds and David Goodger tries to put recent developments in context and argues that "offshoring" should be seen as part of a long-standing and largely beneficial trend of international specialisation. In the short term at least, the transfer of service sector activities abroad is likely to involve relatively small numbers of jobs when compared to overall UK employment and labour market turnover. However, specific areas - such as call centres, back office functions and software programming - are expected to be increasingly affected, impacting upon regions of the UK with heavy exposure to those activities and giving rise to adjustment costs. In contrast, retailing, hotels and catering and personal services could well benefit from the move of low value-added jobs abroad. Overall, the impact of "offshoring" on the UK economy in terms of output and productivity should be positive. [ABSTRACT FROM AUTHOR]

▪ We expect a strong rebound in UK business investment over the next two years. But while the corporate sector is emerging from the crisis less financially damaged than was feared, high levels of debt for some firms is one of several challenges that could undermine a sustained investment revival.▪ Business investment fell heavily during the lockdowns, but not as heavily as during the financial crisis and not for all sectors. As the economy reopens, consumer spending will lead the revival bringing the economy back to its pre‐pandemic position. But investment should follow.▪ Many large companies have paid down bank debt during the pandemic, lowering corporate debt to well below the peak preceding the 2008–2009 recession. But some firms, particularly SMEs, are coming out of the crisis with much higher debt levels. This is likely to negatively impact investment.▪ Still, lower outlays on costs, such as wages and dividends, plus government support mean the corporate sector has accumulated over £100bn of excess cash holdings since early 2020 – fuel for a potential resurgence in investment.▪ Also, the 'super‐deduction' tax incentive should encourage firms to spend some of this cash. But the incentive's effect will be time‐limited, and its coverage is restricted to only a subset of investment. And the planned rise in corporation tax presents a medium‐term headwind to business investment.▪ Overall, we think the elements are in place for a strong rebound in investment, with forecast growth reaching 13% in 2022. But after years of weak GDP growth, Brexit and two 'once in a lifetime' economic shocks in little more than a decade, sustaining rapid investment growth longer‐term could be harder. [ABSTRACT FROM AUTHOR]

Last month saw the publication of the National Skills Task force's final report. The report outlined shortcomings in the UK's vocational education and training (VET) performance. It advocated a number of measures to boost the supply of skilled and educated labour. This follows numerous pronouncements from the present and previous administrations in similar vein. Terms like 'the learning society' and 'the learning organisation' have become common currency. The ESRC Research Centre on Skills, Knowledge and Organisational Performance is investigating the complex issues involving skills and economic performance. Directed by Ken Mayhew and based at the Universities of Oxford and Warwick, one strand of its research is to investigate the possibility that an important source of the UK's VET failings is the lack of demand for skills by employers, and that this at least as important as shortcomings on the supply side. This article by Ewart Keep expands on this theme. [ABSTRACT FROM AUTHOR]