Our latest Business in Britain survey reveals growing economic confidence.
Read the full report >
EASING INFLATION EXPECTATIONS OFFER A LITTLE MORE QE HEADROOM
After rising for three consecutive months to its highest level since last September, inflation expectations, as measured by the net balance of households anticipating higher prices over the next year, fell back to 70% in May from 75% in April. Given a larger-than-expected decline in CPI inflation from 3.5% in March to 3.0% in April, this fallback in expected price pressures, if it continues, offers a little more leeway for the MPC to undertake further QE before the end of the year.
However, it is important to note that despite the decline in headline inflation since last September, when it peaked at 5.2%, expectations remain elevated compared to recent months. This suggests that the underlying pressures on prices may not have softened to the extent suggested by the headline figure. Indeed, some of the 0.5pp decline in CPI inflation during April reflected base effects from the timing of Easter. It is also worth mentioning that while interest rate expectations for the next year declined in the immediate run-up to the last bout of QE, which began in February, they have been broadly stable over the last three months (chart B). This implies that households believe that the MPC are adopting a “wait and see” approach to monetary policy compared with earlier in the year.
IS THE RECENT STRENGTH OF LABOUR MARKET SUSTAINABLE?
Despite the relapse of the economy into a technical recession during 2012Q1, and ongoing headwinds from the euro area, the labour market appears to be fairly resilient with the latest data signalling that employment rose by 105k in the three months to March while ILO unemployment fell by 45k over the same period with the rate declining to 8.2%. Meanwhile, the claimant count declined for the second consecutive month in April.
However, there are signs that these developments may be temporary. For example, the number of job vacancies has fallen by 7k since January and, at 457k in April, stands at its lowest level since last July. Both our sentiment indices, for job security and job prospects, anticipated the Q1 improvements in the headline indicators. However, the more recent outturns, for April and May, have been far softer, which suggests that these labour market gains are set to slow over the coming months (chart C). For example, the average monthly improvement of the job security net balance over the first three months of the year stood at 4 percentage points (pp). However this has slowed to 2.5 points per month during April and May. The job prospects balance paints an even more stark picture. The balance rose by an average of 5.7pp during Q1, but has been basically flat during March and April. Moreover, despite the improvement in Q1, both indices remain close to their pre-recession levels (chart D).
This document is confidential, for your information only and must not be distributed, in whole or in part, to any person not involved with the proposed transaction without the prior consent of Lloyds TSB Bank plc (“Lloyds Bank”). Whilst Lloyds Bank has exercised reasonable care in preparing this document and any views or information expressed or presented are based on sources it believes to be accurate and reliable, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. In particular, whilst we have sought to identify appropriate products and to provide guidance as to how those products might operate under various accounting standards we are not, and should not be considered to be, giving an accounting opinion or advice and you should conduct your own independent enquiries and seek your own professional advice in this respect. Any transaction which you may enter into with us will be on the basis that you have made your own independent evaluations based on your own knowledge and experience and any professional advice which you may have sought in relation to all aspects of the transaction including legal, regulatory, tax or accounting.
All terms contained herein, including pricing, are indicative only and subject to change without notice. This material has been prepared for information purposes only and Lloyds Bank, its directors, officers and employees are not responsible for any consequences arising from any reliance upon such information. If you receive information from us which is inconsistent with other information which you have received from us, you should refer this to your Lloyds Bank Sales representative for clarification.
Lloyds Bank, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of Lloyds TSB Bank plc and Lloyds TSB Scotland plc. Lloyds Bank and Lloyds TSB Corporate Markets are trading names of Bank of Scotland plc. Lloyds TSB Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ.
Registered in Scotland no. 327000. Authorised and regulated by the Financial Services Authority under registration numbers 119278, 191240 and 169628 respectively.