Over the past year the recovery in the UK economy appears to have slowed. An article in the Bank of England’s Quarterly Bulletin,
published today, explains that a key reason for the weakness in UK
demand has been falling consumption, reflecting the challenging
environment facing households. Evidence drawn from the ninth annual
survey of households carried out for the Bank of England by NMG
Consulting suggests that most households have experienced an income
squeeze over the past year. And around half of households reported that
they had been affected by, and had responded to, the fiscal
consolidation. For example, by either seeking a new job or working
longer hours. But the article says that reported levels of financial
distress appear to have been contained by the low level of Bank Rate and
some forbearance by lenders. Looking ahead, surveyed households report
uncertainty about their future incomes and expect to continue to be
influenced by the fiscal tightening.
Another article in the Bulletin discusses
the important role that public capital markets play in financing the
activities of non-financial companies in the UK, providing them with a
key alternative to bank loans and private sources of finance. Although a
small number of UK companies issue public bonds and equity, the article
notes that those companies account for a relatively large share of
domestic investment and employment. Since the start of the financial
crisis in 2007, bond and equity issuance is reported to have allowed
some large companies to dampen the impact of the contraction in bank
lending and the worsening economic outlook on investment and hiring.
This leads the authors to suggest that there may be macroeconomic
benefits to broadening access to public capital markets. The article
says central banks can also play a role in maintaining orderly financial
markets to support issuance of public debt or equity. For example, the
Bank of England has helped support primary corporate bond issuance at
times of impaired secondary market functioning since 2009 through its
Corporate Bond Secondary Market Scheme.
The remaining articles in the Bulletin
cover: developments in financial markets; the effect of sterling’s
recent depreciation on UK exports and imports; and the tradeoffs that
can arise as a result of the various ways in which OTC derivatives can
be traded.
