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Speaker 1: Dave Ramsen, Deputy Governor of the Bank of England. Dave,

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Speaker 1: very nice to have you on the program this morning.

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Speaker 1: I'll focus in on the UK in our conversation certainly initially,

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Speaker 1: and I want to ask you about growth forecast, because

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Speaker 1: the Bank of England is forecasting no growth for the

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Speaker 1: UK economy in twenty twenty four, but the Ober forecast,

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Speaker 1: I think is for zero point seven percent growth. I

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Speaker 1: wonder what you think explains those kind of divergencies and

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Speaker 1: uncertainties about the UK outlook for next year.

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Speaker 2: Well, thanks, Anna, and it's very good to be able

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Speaker 2: to join you from Hong Kong and to start by

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Speaker 2: talking about the UK economy and what we've seen so

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Speaker 2: far this year in terms of growth is actually more

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Speaker 2: resilience than we were expecting. So there was positive growth

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Speaker 2: in the first half of the year, but we've seen

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Speaker 2: zero a zero print for growth in Q three and

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Speaker 2: our forecast is that growth's going to continue to flat

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Speaker 2: line as restrictive monetary policy continues to bear down on demand.

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Speaker 2: I think the OBR have a pretty similar profile for growth.

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Speaker 2: They do have growth picking up more strongly next year,

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Speaker 2: but still really quite subdued.

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Speaker 1: Okay, and just on that contrast with the OBR, I

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Speaker 1: understand that you have a slightly lower speed limit in

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Speaker 1: your thinking around the UK economy than the OBR does.

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Speaker 1: So the level at which growth can get to you

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Speaker 1: before it comes inflationary, I think you're at about zero

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Speaker 1: point seventy five percent. They have a higher number. I

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Speaker 1: appreciate it rises over time, but why do you think

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Speaker 1: you take that view?

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Speaker 2: That is a really important part of our forecast. And

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Speaker 2: also I think one of the factors, as I've been

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Speaker 2: saying here in Hong Kong that distinguishes us from other

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Speaker 2: four We do have weak growth in potential supply or

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Speaker 2: if you like, the speed limit at which the economy

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Speaker 2: can grow without triggering inflation. And that's really borne out

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Speaker 2: of the analysis that we've done of how the economy

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Speaker 2: has performed in recent years. Had very weak productivity growth

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Speaker 2: on the oens's latest experimental series. I think there was

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Speaker 2: zero productivity growth in the year to Q three. And

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Speaker 2: also we've been highlighting for some time the fact that

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Speaker 2: labor supply has been weak in the sense that the

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Speaker 2: number of people participating in the economy is actually still

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Speaker 2: in terms of inactivity through sickness, lower than pre COVID,

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Speaker 2: So that's another supply side factor. And a third one

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Speaker 2: would be that we think there are signs that the

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Speaker 2: equilibrium rate of unimpl employment might have gone up a

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Speaker 2: little bit in the recent past. The matching between the

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Speaker 2: jobs of available vacancies and workers looking for jobs, we

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Speaker 2: think may have deteriorated a bit. So all of those

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Speaker 2: factors give us this weak potential supply outlook, this weaker

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Speaker 2: speed limit. Those are judgments, and I think the OBI

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Speaker 2: probably have taken a slightly more positive view on some

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Speaker 2: of those judgments. And time will tell.

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Speaker 1: Okay, okay, time will tell. Time will tell around services

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Speaker 1: inflation as well. But you do seem to think that

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Speaker 1: services inflation is going to be sticky. What are you

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Speaker 1: seeing that worries you? And when you talk to people

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Speaker 1: around the country, what is it you're seeing in that

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Speaker 1: particular dynamic.

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Speaker 2: Yeah, and that's really really important point about the outlook

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Speaker 2: for inflation. I gave a speech actually at Bloomberg a

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Speaker 2: week before last and I highlighted that actually, our headline

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Speaker 2: inflation forecast, this is the NPC's headline inflation forecast, had

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Speaker 2: come in this quarter very much in line with what

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Speaker 2: we were forecasting. A year ago. So inflation was four

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Speaker 2: point six percent in October and is going to be

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Speaker 2: under five percent for the quarter as a whole. So

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Speaker 2: inflation is less than half what it was a year ago,

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Speaker 2: but that's been driven down by a bigger fall in

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Speaker 2: the energy component than we were expecting. But meanwhile, services,

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Speaker 2: which makes up forty five percent of the consumer basket

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Speaker 2: that makes up the CPI inflation number, that's actually much

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Speaker 2: stickier and higher than we were expecting at six point

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Speaker 2: six percent, And so that's really a sign that UK

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Speaker 2: inflation is becoming much more home grown, and we think

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Speaker 2: that that inflation is going to be challenging to squeeze

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Speaker 2: out of the system. It's driven by wages, where wage

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Speaker 2: growth remains above seven percent. The service sector in the

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Speaker 2: UK is very labor intensive, so you know, these factors

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Speaker 2: are what's leading to us think that inflation is going

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Speaker 2: to stay stubbornly high through next.

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Speaker 1: Year, which is why on the services outlet, monetary course

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Speaker 1: is going to have to Yeah, so can I ask you,

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Speaker 1: Can I go and ask you about other dynamics around inflation.

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Speaker 1: Then we recently heard from the government, of course, and

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Speaker 1: ten billion pounds worth of tax cuts. Is that going

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Speaker 1: to add to inflation repressure, Dave, is that how you

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Speaker 1: view those tax cuts.

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Speaker 2: Well, we when we put our last set of forecast together,

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Speaker 2: which I've been talking about back in early November, we

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Speaker 2: didn't know what was in the autumn statement. So we'll

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Speaker 2: have a first chance to look at what's in the

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Speaker 2: autumn statement in terms of what it means for the

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Speaker 2: outlook when we have the NPC round in December. When

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Speaker 2: I get back to London next week, we'll be starting

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Speaker 2: on that round, but we'll be incorporating it formally into

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Speaker 2: our forecast next February. And one thing we'll be able

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Speaker 2: to look again at is particularly the evidence of more

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Speaker 2: persistence in inflation services. As you were saying earlier, you know,

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Speaker 2: we'll be able to also talk to businesses around the

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Speaker 2: country to see what they're seeing in terms of the

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Speaker 2: persistence in inflationary pressures. And it is in services inflation

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Speaker 2: that we see the most risk of persistence, the most

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Speaker 2: risk of stickiness.

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Speaker 1: Can I ask you about the table Mountain analogy at

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Speaker 1: the Bank of England. You've set out this idea that

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Speaker 1: this helps to explain how rates will say hi for

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Speaker 1: a period and everybody's trying to work out how long

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Speaker 1: that period is. Of course, you've said today that it

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Speaker 1: will take two years to get inflation back down to

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Speaker 1: tied it and you're part of a number of sort

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Speaker 1: of hawkish messages, relatively hawkish messages. I suppose versus the

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Speaker 1: market that we're hearing from the Bank of England, is

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Speaker 1: that a concerted communication effort? Do you think that the

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Speaker 1: market is overly pricing in rate carts for next year.

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Speaker 2: I can't speak for whether it's a concerted communication effort. Certainly,

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Speaker 2: from the perspective of the Monetary Policy Committee, we do

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Speaker 2: want to emphasize that based on where we see the

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Speaker 2: economy going as of now, based on our current forecast,

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Speaker 2: we think the monetary policy is going to have to

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Speaker 2: stay restrictive for an extended period. We've had bank rate

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Speaker 2: now at five and a quarter percent since our August meeting.

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Speaker 2: We'll be able to return to the decision in December,

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Speaker 2: but certainly given the risks that we see in terms

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Speaker 2: of the persistence of ukme F as you were saying,

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Speaker 2: on our forecast, it takes a year for inflation to

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Speaker 2: come down from four point six percent to three percent

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Speaker 2: at the end of next year, and then it takes

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Speaker 2: another year on our most likely or modal forecast for

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Speaker 2: inflation to get down to two percent, but we see

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Speaker 2: upside risks, and so even at the end of twenty

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Speaker 2: twenty five, our mean or average forecast is actually just

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Speaker 2: above our two percent target. But I guess I would

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Speaker 2: stress that this is based on the forecasts that we presented,

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Speaker 2: and as where you always want to stress, we're not

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Speaker 2: making any kind of commitment to where interest rates will be.

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Speaker 2: We're saying that conditional on the outlook for the economy,

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Speaker 2: we think that monetary policy is going to have to

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Speaker 2: stay restrictive, interest rates are going to have to stay

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Speaker 2: high for an extended period. But that's a data dependent

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Speaker 2: point and we'll be able to review our four casts

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Speaker 2: against developments.

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Speaker 1: Thanks so much for joining us to Dave Ramsen, the

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Speaker 1: Deputy Governor of the Bank of England, Thank you for

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Speaker 1: your time joining us there. From Hong Kong,