Wednesday, May 16, 2012
Good news on jobs, bad news for Mervyn
Posted by David Smith at 03:00 PM
Category: Thoughts and responses

This was Sir Mervyn King today, presenting the Bank of England's latest inflation report:

"Output in the United Kingdom has been broadly flat for a year and a half. It remains more than 4% below its level at the start of 2008. Inflation has fallen back sharply from its peak in September last year but remains well above the 2% target, and is more likely than not to be above target until the middle of next year.

"Weak growth and high inflation have been the unavoidable consequences of the financial crisis, developments in global commodity prices, and the need to rebalance our economy. That has been painful for everyone in our society. The challenge facing the MPC is to navigate a route back to normality."

The governor, to be fair, has never exuded confidence about growth and has always stressed the uncertainties about the inflaton outlook. But the 'Waiting for Godot' pattern of the Bank's forecasts - inflation is always gong to come down and growth pick up but not just yet - is developing the pattern of a serial offender.

Today's forecast suggests that the recession of the past two quarters will be revised away and that growth will be around 0.75% this year, picking up to just over 2% next year. Inflation is unlikely to get to 2% before the middle of next year, so may not return to target during the remainder of Sir Mervyn's reign, but should be falling in the early months of the new governor's tenure. As long, that is, as the forecast is right. The report is here.

The labour market numbers, meanwhile, were encouraging, and raised more doubts about the official GDP figures. Employment, driven by an increase in part-time workers, rose by 105,000 in the latest three months. Unemployment dropped by 45,000 to 2.63m, and from 8.4% to 8.2% of the workforce.

Total hours worked rose to 925.8m in the first quarter, from 917.4m in the fourth quarter. Earnings growth, however, remained very weak, up by 0.6% on a year earlier including bonuses, and 1.6% excludng bonuses. More here.