Monetary Policy Report November 2023

Bank of England
Monetary Policy Report
Monetary Policy Committee

November 2023
Bank of England Page 1
Monetary policy at the Bank of England
The objectives of monetary policy

The Bank’s Monetary Policy Committee (MPC) sets monetary policy to keep inflation low and
stable, which supports growth and jobs. Subject to maintaining price stability, the MPC is also
required to support the Government’s economic policy.
The Government has set the MPC a target for the 12-month increase in the Consumer Prices
Index of 2%.
The 2% inflation target is symmetric and applies at all times.
The MPC’s remit recognises, however, that the actual inflation rate will depart from its target
as a result of shocks and disturbances, and that attempts to keep inflation at target in these
circumstances may cause undesirable volatility in output. In exceptional circumstances, the
appropriate horizon for returning inflation to target can vary. The MPC will communicate how
and when it intends to return inflation to the target.
The instruments of monetary policy

The MPC currently uses two main monetary policy tools. First, we set the interest rate that
banks and building societies earn on deposits, or ‘reserves’, placed with the Bank of England
– this is Bank Rate. Second, we can buy government and corporate bonds, financed by the
issuance of central bank reserves – this is asset purchases or quantitative easing.
The Monetary Policy Report

The MPC is committed to clear, transparent communication. The Monetary Policy Report
(MPR) is a key part of that. It allows the MPC to share its thinking and explain the reasons for
its decisions.
The Report is produced quarterly by Bank staff under the guidance of the members of the
MPC.
This Report has been prepared and published by the Bank of England in accordance with
section 18 of the Bank of England Act 1998.
The Monetary Policy Committee
• Andrew Bailey, Chair

• Sarah Breeden
• Ben Broadbent
• Swati Dhingra
• Megan Greene
• Jonathan Haskel
• Catherine L Mann
• Huw Pill
• Dave Ramsden
PowerPoint™ versions of the Monetary Policy Report charts and Excel spreadsheets of the
data underlying most of them are available at http://www.bankofengland.co.uk/monetary-
policy-report/2023/november-2023.
© Bank of England 2023
ISSN 2633-7819
Contents
Monetary Policy Summary 4

1: The economic outlook 7
1.1: The conditioning assumptions underlying the MPC’s projections 9
1.2: Key judgements and risks 10
Box A: Monetary policy since the August 2023 Report 32
2: Current economic conditions 34
2.1: Global developments and domestic credit conditions 36
2.2: Domestic activity and the labour market 44
2.3: Wage growth and inflation 52
2.4: Inflation expectations 61
Box B: Uncertainties around official estimates of labour market activity 65
Box C: How has Blue Book 2023 changed past estimates of UK GDP growth? 70
Box D: Agents’ update on business conditions 72

3: In focus – The outlook for demand 78
3.1: Recent developments in GDP 78
3.2: Key factors supporting the resilience in demand 79
3.3: The impact of higher interest rates on demand 87
3.4: Conclusion 99
Annex: Other forecasters’ expectations 100
Glossary and other information 102

Monetary Policy Summary
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet
the 2% inflation target, and in a way that helps to sustain growth and employment. At its
meeting ending on 1 November 2023, the MPC voted by a majority of 6–3 to maintain
Bank Rate at 5.25%. Three members preferred to increase Bank Rate by 0.25 percentage
points, to 5.5%.
The Committee’s updated projections for activity and inflation are set out in the
accompanying November Monetary Policy Report. These are conditioned on a market-
implied path for Bank Rate that remains around 5¼% until 2024 Q3 and then declines
gradually to 4¼% by the end of 2026, a lower profile than underpinned the August
projections.
Since the MPC’s previous meeting, long-term government bond yields have increased
across advanced economies. GDP growth has been stronger than expected in the United
States. Underlying inflationary pressures in advanced economies remain elevated.
Following events in the Middle East, the oil futures curve has risen somewhat while gas
futures prices are little changed.
UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August
Report. Some business surveys are pointing to a slight contraction of output in Q4 but
others are less pessimistic. GDP is expected to grow by 0.1% in Q4, also weaker than
projected previously.
The MPC continues to consider a wide range of data to inform its view on developments
in labour market activity, rather than focusing on a single indicator. The increasing
uncertainties surrounding the Labour Force Survey underline the importance of this
approach. Against a backdrop of subdued economic activity, employment growth is likely
to have softened over the second half of 2023, and to a greater extent than projected in
the August Report. Falling vacancies and surveys indicating an easing of recruitment
difficulties also point to a loosening in the labour market. Contacts of the Bank’s Agents
have similarly reported an easing in hiring constraints, although persistent skills shortages
remain in some sectors.
Pay growth has remained high across a range of indicators, although the recent rise in the
annual rate of growth of private sector regular average weekly earnings has not been
apparent in other series. There remains uncertainty about the near-term path of pay, but
wage growth is nonetheless projected to decline in coming quarters from these elevated
levels.
Twelve-month CPI inflation fell to 6.7% both in September and 2023 Q3, below
expectations in the August Report. This downside news largely reflects lower-than-
expected core goods price inflation. At close to 7%, services inflation has been only
slightly weaker than expected in August. CPI inflation remains well above the 2% target,
but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾%
in 2024 Q2. This decline is expected to be accounted for by lower energy, core goods and
food price inflation and, beyond January, by some fall in services inflation.
In the MPC’s latest most likely, or modal, projection conditioned on the market-implied
path for Bank Rate, CPI inflation returns to the 2% target by the end of 2025. It then falls
below the target thereafter, as an increasing degree of economic slack reduces domestic
inflationary pressures.
The Committee continues to judge that the risks to its modal inflation projection are
skewed to the upside. Second-round effects in domestic prices and wages are expected
to take longer to unwind than they did to emerge. There are also upside risks to inflation
from energy prices given events in the Middle East. Taking account of this skew, the mean
projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons
respectively. Conditioned on the alternative assumption of constant interest rates at
5.25%, which is a higher profile than the market curve beyond the second half of 2024,
mean CPI inflation returns to target in two years’ time and falls to 1.6% at the three-year
horizon.
The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy
of price stability in the UK monetary policy framework. The framework recognises that
there will be occasions when inflation will depart from the target as a result of shocks and
disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target
sustainably in the medium term.
Since the MPC’s previous decision, there has been little news in key indicators of UK
inflation persistence. There have continued to be signs of some impact of tighter monetary
policy on the labour market and on momentum in the real economy more generally. Given
the significant increase in Bank Rate since the start of this tightening cycle, the current
monetary policy stance is restrictive. At this meeting, the Committee voted to maintain
Bank Rate at 5.25%.
The MPC will continue to monitor closely indications of persistent inflationary pressures
and resilience in the economy as a whole, including a range of measures of the
underlying tightness of labour market conditions, wage growth and services price inflation.
Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation
to the 2% target sustainably in the medium term, in line with the Committee’s remit. The
MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for
an extended period of time. Further tightening in monetary policy would be required if
there were evidence of more persistent inflationary pressures.
1: The economic outlook
Twelve-month CPI inflation remains well above the MPC’s 2% target, but has fallen
back to 6.7% both in September and in 2023 Q3 as a whole, below expectations in
the August Monetary Policy Report. Most of the downside news since the previous
Report reflects lower core goods price inflation. Services inflation has been only
slightly weaker than expected in August and remains elevated. CPI inflation is
expected to continue to fall quite sharply in the near term, to an average of around
4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2. Most indicators of pay
growth have tended to be stable at rates of growth that are high. But they have not
shown the recent rise in the annual rate of growth of the private sector regular AWE
series. Earnings growth is expected to be somewhat stronger than in the August
Report, but is still projected to decline in coming quarters from these elevated
levels.
Second-round effects in domestic prices and wages are expected to take longer to
unwind than they did to emerge (Key judgement 3). In the most likely, or modal,
forecast conditioned on the market-implied path of interest rates, an increasing
degree of slack in the economy and declining external cost pressures lead CPI
inflation to return to the 2% target by the end of 2025 and to fall below target
thereafter. Compared with the August Report modal projection, inflation is expected
to return to close to the 2% target slightly less rapidly in the middle of the forecast
period, reflecting higher energy and other import price inflation.
The Committee continues to judge that the risks to its modal projection are skewed
to the upside. Taking account of this skew, and conditioned on market interest rates,
mean CPI inflation is 2.2% and 1.9% at the two and three-year horizons
respectively. In the mean projection conditioned on the alternative assumption of
constant interest rates at 5.25% over the forecast period, CPI inflation is expected
to be 2.0% and 1.6% in two years’ and three years’ time respectively.
Given the significant increase in Bank Rate since the start of this tightening cycle,
the current monetary policy stance is restrictive. GDP is expected to be broadly flat
in the first half of the forecast period and growth is projected to remain well below
historical averages in the medium term, also reflecting a waning boost from fiscal
policy and subdued potential supply growth (Key judgement 1). GDP is lower
compared with August, reflecting recent weaker-than-expected activity data and the
Committee’s related decision in this forecast to reduce somewhat the scale of, but
not to remove completely, its previous judgement boosting expected demand.
The margin of excess demand in the UK economy has diminished over recent
quarters and an increasing degree of economic slack is expected to emerge from
the start of next year (Key judgement 2). Unemployment is expected to rise further
over the forecast period and exceed the Committee’s upwardly revised estimate of
the medium-term equilibrium rate from the end of next year. There are increased
uncertainties around the ONS’s official labour market activity data that have
previously been based on the Labour Force Survey, and the Committee is therefore
continuing to consider the collective steer from a range of indicators.
Table 1.A: Forecast summary (a) (b)
2023 Q4 2024 Q4 2025 Q4 2026 Q4
GDP (c) 0.6 (0.9) 0 (0.1) 0.4 (0.5) 1.1
Modal CPI inflation (d) 4.6 (4.9) 3.1 (2.5) 1.9 (1.6) 1.5
Mean CPI inflation (d) 4.6 (4.9) 3.4 (2.8) 2.2 (1.9) 1.9
Unemployment rate (e) 4.3 (4.1) 4.7 (4.5) 5 (4.8) 5.1
Excess supply/Excess demand (f) 0 (¼) -¾ (-¾) -1½ (-1½) -1½
Bank Rate (g) 5.3 (5.8) 5.1 (5.9) 4.5 (5) 4.2
(a) Figures in parentheses show the corresponding projections in the August 2023 Monetary Policy Report.
(b) Unless otherwise stated, the numbers shown in this table are modal projections and are conditioned on the
assumptions described in Section 1.1. The main assumptions are set out in Monetary Policy Report – Download
chart slides and data – November 2023.
(c) Four-quarter growth in real GDP.
(d) Four-quarter inflation rate. The modal projection is the single most likely outcome. If the risks are symmetrically
distributed around this central view, this will also provide a view of the average outcome or mean forecast. But when the
risks are skewed, as in the current forecast, the mean projection will differ from the mode.
(e) ILO definition of unemployment. Up to June 2023, this projection is based on LFS unemployment data. Beyond this
point, the Committee is drawing on the collective steer from other indicators of unemployment to inform its projection
(see Box B).
(f) Per cent of potential GDP. A negative figure implies output is below potential and a positive that it is above.
(g) Per cent. The path for Bank Rate implied by forward market interest rates. The curves are based on overnight index
swap rates.
1.1: The conditioning assumptions underlying the MPC’s

projections
As set out in Table 1.B, the MPC’s projections are conditioned on:
The paths for policy rates in advanced economies implied by financial markets, as
captured in the 15-working day average of forward interest rates to 24 October (Chart
2.5). The market-implied path for Bank Rate in the United Kingdom has fallen by just
over ½ percentage point on average over the next three years compared with the
equivalent period at the time of the August Report. The path for Bank Rate
underpinning the November projections remains around 5¼% until 2024 Q3 and then
declines gradually to 4¼% by the end of 2026. There has been a significant increase in
longer-term government bond yields globally since August (Section 2.1).
A path for the sterling effective exchange rate index that is around 1½% lower on
average than in the August Report, and is depreciating gradually over the forecast
period given the role for expected interest rate differentials in the Committee’s
conditioning assumption.
Wholesale energy prices that follow their respective futures curves over the forecast
period. Since August, spot oil prices and the oil futures curve have risen, while gas
futures prices are little changed. Significant uncertainty remains around the outlook for
wholesale energy prices, including related to recent geopolitical developments (Key
judgement 3).
UK household energy prices that move in line with Bank staff estimates of the Ofgem
price cap implied by the path of wholesale energy prices (Section 2.3).
Fiscal policy that evolves in line with announced UK government policies to date, and
so does not include the contents of the Autumn Statement on 22 November.
Table 1.B: Conditioning assumptions (a) (b)
Average Average 2022 2023 2024 2025 2026

1998–2007 2010–19
Bank Rate 5.0 0.5 2.8 5.3 (5.8) 5.1 (5.9) 4.5 (5) 4.2
(c)
Sterling 100 82 78 81 (82) 80 (81) 80 (81) 79

effective
exchange
rate (d)
Oil prices 39 77 89 90 (79) 81 (75) 77 (72) 74

(e)
Gas prices 29 52 201 118 (113) 142 (139) 117 (114) 99

(f)
Nominal 7¼ 2¼ 4 6¼ (4) ¾ (3) 1¾ (1½) 2½

government
expenditure
(g)
Sources: Bank of England, Bloomberg Finance L.P., Office for Budget Responsibility (OBR), ONS, Refinitiv Eikon from
LSEG and Bank calculations.
(a) The table shows the projections for financial market prices, wholesale energy prices and government spending
projections that are used as conditioning assumptions for the MPC’s projections for CPI inflation, GDP growth and the
unemployment rate. Figures in parentheses show the corresponding projections in the August 2023 Monetary Policy
Report.
(b) Financial market data are based on averages in the 15 working days to 24 October 2023. Figures show the average
level in Q4 of each year, unless otherwise stated.
(c) Per cent. The path for Bank Rate implied by forward market interest rates. The curves are based on overnight index
swap rates.
(d) Index. January 2005 = 100. The convention is that the sterling exchange rate follows a path that is half way between
the starting level of the sterling ERI and a path implied by interest rate differentials.
(e) Dollars per barrel. Projection based on monthly Brent futures prices.
(f) Pence per therm. Projection based on monthly natural gas futures prices.
(g) Annual average growth rate. Nominal general government consumption and investment. Projections are based on
the OBR's March 2023 Economic and Fiscal Outlook. Historical data based on NMRP+D7QK.
1.2: Key judgements and risks

1.2: Key judgement 1
GDP is expected to be broadly flat in the first half of the forecast period and growth
is projected to remain well below historical averages in the medium term. That
reflects the significant increase in Bank Rate since the start of this tightening cycle,
subdued potential supply growth, and a waning boost from fiscal policy.
UK GDP is expected to have been flat in 2023 Q3, weaker than expected in the August
Monetary Policy Report (Section 2.2). Indicators of growth in Q4 are mixed. Some
business surveys are pointing to a slight contraction in GDP, but others are less
pessimistic. Many contacts of the Bank’s Agents have continued to report weak activity
growth and a subdued outlook. On balance, Bank staff expect GDP to grow by 0.1% in the
fourth quarter, also weaker than projected in August.
Household consumption growth is now expected to be similarly weak during the second
half of this year, consistent with recent declines in retail sales volumes, consumer services
output and consumer confidence. Nonetheless, real labour income growth has been
slightly stronger than expected and workers do not appear to have become more
pessimistic about the security of their own jobs.
For a number of forecast rounds, the Committee has made a judgement to boost the
expected path of demand in light of the surprising resilience of economic activity. This
reflected a number of factors, including the possibility of lower precautionary saving by
households, in turn related to a lower risk of job loss given continued strength in labour
market activity. Developments since August, including in the labour market (Key
judgement 2), suggest that economic activity has been somewhat less resilient over
recent months. As a result, in its latest growth projection, the Committee has scaled back
somewhat the extent of this judgement to boost demand, but has not taken it out
completely.
Given the significant increase in Bank Rate since the start of this tightening cycle, the
current monetary policy stance is restrictive. There are increasing signs of some impact of
tighter policy on momentum in the real economy (Section 3.3). Based on the average
relationships over the past between Bank Rate, other financial instruments and economic
activity, Bank staff estimate that more than half of the impact of higher interest rates on
the level of GDP is still to come through, although there is significant uncertainty around
that estimate. The Committee will continue to monitor closely the impact of the significant
increase in Bank Rate. It will also continue to keep under review the relationship between
Bank Rate and economic activity, including how it may have changed during the current
tightening cycle.
Taken together, the pass-through of past rises in interest rates and the latest market-
implied interest rate path on which the forecast is conditioned (Section 1.1) continue to
push down on GDP over the forecast period. Nevertheless, the fall in the market path over
recent months pushes up on GDP in this forecast compared with the August projection, all
else equal.
As in recent projections, and taking account of all announced government plans, the
positive impacts of past fiscal loosening measures related to the pandemic and the energy
price shock (Section 3.1) on the level of GDP unwind, which pulls down on GDP growth
throughout much of the forecast period. Real government consumption is, nevertheless,
expected to grow quite strongly in 2024, bouncing back from the negative impact on
spending associated with public sector strike activity in 2023.
International growth has remained subdued (Section 2.1) and the path of global GDP is
expected to be broadly similar to that in the August Report. In the MPC’s November
projection, annual UK-weighted world GDP growth is projected to rise from around 1½%
in 2023 to around 2% in the medium term (Table 1.D). That compares with average
annual growth of around 2½% in the decade prior to the pandemic.
Although aggregate global growth is evolving largely as expected, US GDP growth has
been stronger than expected, while the euro area has seen weaker growth. As in the
United Kingdom, the impact of past monetary policy tightening is dragging on activity, with
fiscal policy and the rundown of excess household saving underpinning the resilience of
US demand. Growth in the euro area is expected to pick up over the forecast period, while
growth in the United States and China is projected to fall back somewhat.
Overall in the Committee’s November projection, UK GDP is projected to remain broadly

flat in the first half of the forecast period. As well as the impact of higher interest rates, this
reflects a waning boost from fiscal policy and relatively weak potential supply (Key
judgement 1 in the February 2023 Report and Key judgement 2 in this Report). GDP
growth recovers over the second half of the forecast period, although it remains well
below historical averages in the medium term. Calendar-year GDP growth is expected to
be marginally positive in 2024, and to increase by ¼% in 2025 and by ¾% in 2026 (Table
1.D). Four-quarter GDP growth picks up to slightly over 1% by 2026 Q4 (Chart 1.1).
Relative to the August Report projection, four-quarter GDP growth is expected to be

slightly weaker throughout the forecast period. Abstracting from the increase in the
historical level of GDP related to the Blue Book 2023 revisions (Box C), the level of GDP
has been revised down by around 1% by the end of the forecast period compared with the
August Report. That lower level of activity reflects recent weaker-than-expected GDP data
and the Committee’s related decision in this forecast to reduce somewhat its previous
judgement boosting expected demand. Those factors have been offset partially by the
projected boost to GDP from the lower path of market interest rates on which the forecast
is conditioned and, to a lesser degree, the estimated impact on growth of the recent
exchange rate depreciation (Section 1.1).
Chart 1.1: GDP growth projection based on market interest rate expectations, other
policy measures as announced
The fan chart depicts the probability of various outcomes for GDP growth. It has been conditioned on Bank Rate
following a path implied by market yields, but allows the Committee’s judgement on the risks around the other
conditioning assumptions set out in Section 1.1, including wholesale energy prices, to affect the calibration of the fan
chart skew. To the left of the shaded area, the distribution reflects uncertainty around revisions to the data over the past.
To the right of the shaded area, the distribution reflects uncertainty over the evolution of GDP growth in the future. If
economic circumstances identical to today’s were to prevail on 100 occasions, the MPC’s best collective judgement is
that the mature estimate of GDP growth would lie within the darkest central band on only 30 of those occasions. The fan
chart is constructed so that outturns are also expected to lie within each pair of the lighter aqua areas on 30 occasions.
In any particular quarter of the forecast period, GDP growth is therefore expected to lie somewhere within the fan on 90
out of 100 occasions. And on the remaining 10 out of 100 occasions GDP growth can fall anywhere outside the aqua
area of the fan chart. Over the forecast period, this has been depicted by the grey background. See the Box on page 39
of the November 2007 Inflation Report for a fuller description of the fan chart and what it represents.
In the GDP projection conditioned on the alternative assumption of constant interest rates
at 5.25% over the forecast period, growth is lower in the forecast period compared with
the MPC’s projection conditioned on market rates, as the constant rate assumption is
above the market curve to an increasing degree beyond the end of next year.
Within the expenditure components underpinning the November GDP projection

conditioned on market interest rates, calendar-year household spending is expected to
grow by ½% this year, to be flat in 2024, and to rise by ½% in 2025 and by 1% in 2026
(Table 1.D). This projected path of consumption is weaker than in the August Report. Real
post-tax labour income is projected to grow by ¾% this year and by 1% in 2024, but more
modestly in 2025 and 2026. Taking account of all components of household income, the
saving ratio is expected to be broadly unchanged over much of the forecast period, flatter
than the downward-sloping path projected in the August Report. That reflects a higher
degree of precautionary saving than expected previously, in part owing to the higher
profile for unemployment (Key judgement 2), and is broadly consistent with the
Committee’s decision in this forecast to reduce somewhat the scale of its judgement
boosting expected spending.
In large part reflecting the transmission of higher interest rates (Section 3.3), housing
investment is expected to fall significantly, by 5¾% in 2023, by 6¾% 2024 and by 2¾% in
2025. This profile is similar to that in the August Report, and is consistent with weakness
in housing transactions and forward-looking indicators of new housing construction.
Business investment is projected to increase by just under 7% this year, but to fall by 1%
in 2024, in part reflecting transport sector related volatility in capital expenditure. As set
out in Box D, respondents to a special survey by the Bank’s Agents expect investment
growth to slow slightly next year but remain positive. Investment intentions are being held
back by economic uncertainty, and by the cost and availability of finance, but supported by
the need to invest for a number of reasons such as digitalisation, efficiency, sustainability
and maintenance. Further out in the latest projection, business investment is expected to
be broadly flat in 2025, before increasing by 2% in 2026.
The risks around the projection for UK GDP growth are judged to be broadly
balanced.
There are risks in both directions around the central projections for household spending
and GDP, including related to the Committee’s decision in this forecast to scale back
somewhat the extent of its judgement to boost expected demand. Spending could be
stronger than expected if there is greater resilience in labour market activity (Key
judgement 2) and some households choose to save less or run down existing stocks of
savings to a greater extent. Conversely, demand could be weaker than expected if some
people become more worried about their job security and try to build up their savings to a
greater extent. The latest Bank/NMG survey suggests that, among those who are
planning to change their saving habits compared with the previous six months, the share
of households who are planning to save more than usual over the next six months is
expected to rise to around half (Chart 3.5).
There are also risks related to the transmission of monetary policy, including the response
of consumption to higher interest rates. Although there is a much greater proportion of
fixed-rate mortgages than in previous tightening cycles, some mortgagors who anticipate
needing to refinance in the future may take greater advance actions to prepare for facing
higher interest costs. There could also be non-linearities in the response of consumption
to weakness in the housing market via collateral and other channels (Section 3.3). These
could, in turn, relate to developments in unemployment and mortgage distress.
Internationally, the risk of higher commodity prices, including related to geopolitical

developments, could lead to weaker UK economic activity as well as upward pressure on
CPI inflation (Key judgement 3).

The margin of excess demand in the UK economy has diminished over recent
quarters and an increasing degree of economic slack is expected to emerge from
the start of next year. Unemployment is expected to rise further over the forecast
period and exceed the Committee’s upwardly revised estimate of the medium-term
equilibrium rate from the end of next year.
As set out in Box C, the upward revisions to GDP in Blue Book 2023 provide limited news
about the balance of demand and supply in the market sector economy, and hence
domestic inflationary pressures (Key judgement 3). In light of that, the MPC has judged it
appropriate to revise up potential supply in line with the revisions to measured GDP, such
that the output gap over the past is unchanged.
The Committee continues to judge that there has been a significant margin of excess
demand in the economy over the past two years, averaging just under 1% of potential
GDP, and in part reflecting the weakness of potential supply. That excess demand has
been accounted for by the tightness of the labour market and, prior to 2023, a higher than
normal degree of capacity utilisation within companies.
Since around the middle of last year, however, the margin of aggregate excess demand is
judged to have been diminishing, such that only a little remains currently. This is
consistent with the recent loss of momentum in activity (Key judgement 1) and with other
top-down cross-checks of the degree of slack in the economy. Compared with the August
Report, the decline in excess demand is judged to be occurring a little faster during the
second half of this year than expected previously.
The MPC is continuing to consider the collective steer from a wide range of data to inform
its view on labour market developments. As discussed in Box B, there are increased
uncertainties around the ONS’s official labour market activity data that have previously
been based on the Labour Force Survey (LFS). A decline in response rates has resulted
in the ONS temporarily ceasing to publish LFS estimates of employment, unemployment

and inactivity from the June data. The ONS has, however, published experimental
estimates of employment and unemployment that need to be interpreted with caution.
As discussed in Box B, the Committee is therefore continuing to consider the collective

steer from other indicators of labour market activity. Generally speaking, the Committee
has a wider set of indicators to draw on for its understanding of developments in
employment than it does for developments in the split of non-employment between
unemployment and inactivity.
Taken together, a range of indicators suggest that employment growth is likely to have
softened over the second half of this year to a greater extent than expected in the August
Report, but not turned negative (Section 2.2). Developments in indicators of recruitment
difficulties point to a loosening in the labour market. Contacts of the Bank’s Agents have
also reported an easing in hiring constraints, although persistent skills shortages remain in
some sectors.
Recent LFS data issues notwithstanding, the unemployment rate is expected to be around
4¼% during the second half of 2023, slightly higher than expected in the August Report.
On this basis, the vacancies to unemployment ratio, an alternative measure of labour
market tightness, has continued to decline.
As discussed in the August Report, there is significant uncertainty about the rate of
unemployment consistent with meeting the 2% inflation target in the medium term. Higher-
than-expected wage growth after the recent terms of trade shock to the economy
suggests that the medium-term equilibrium rate is likely to be temporarily higher, as
employees and domestic firms have sought compensation in the form of higher nominal
pay and domestic selling prices for the reductions in real incomes that they have
experienced. There is also some evidence that the efficiency with which vacancies are
matched to those seeking work has decreased over recent years, which would be pushing
up more structurally on the equilibrium rate of unemployment. In its November forecast,
the Committee has made an additional judgement to increase its estimate of the medium-
term equilibrium rate of unemployment from the period since the energy shock started
and, to a lesser degree, over the forecast period. This equilibrium rate is judged to be
around 4½% currently. This change in judgement is consistent with a somewhat stronger
outlook for wage growth and domestic inflationary pressures all else equal (Key
judgement 3).
The increase in the equilibrium rate of unemployment also pushes down aggregate supply
growth. Four-quarter supply growth is expected to slow from around 1½% currently to
around ¾% next year, before rising to around 1¼% in the medium term, the latter of which
is similar to in previous Reports. The Committee will undertake a full review of the
determinants of the overall longer-term supply capacity of the economy in its next regular
stocktake ahead of the February 2024 Report.
Although aggregate supply is expected to be relatively subdued, particularly in the near

term, the outlook for demand is weaker, leading to an increasing degree of economic
slack emerging in the Committee’s latest projections from the start of next year. The
margin of aggregate excess supply is expected to widen to just over 1½% of potential
GDP by the end of the forecast period (Table 1.A), broadly similar to its path in the August
Report. Relative to August, the projection for excess demand/supply has been pushed up
by the lower market path of interest rates and by the Committee’s judgement to raise the
equilibrium rate of unemployment, which has reduced potential supply. But the projection
has been pushed down by the Committee’s decision to scale back slightly the extent of its
judgement boosting expected demand.
In part reflecting indications of relatively optimistic longer-term expectations for output,

companies are expected to continue to respond to the weakness in demand by retaining
their existing inputs, while using them less intensively and hoarding labour for a prolonged
period. This limits to some extent the rise in unemployment that would otherwise be
expected to occur. Nevertheless, in the MPC’s November projection, the unemployment
rate is projected to continue to rise gradually over the forecast period such that it exceeds
the Committee’s updated estimate of the medium-term equilibrium rate from the end of
next year, and it reaches just over 5% by the end of 2026 (Chart 1.2). This is slightly
higher than in the August Report, but is consistent with a similar degree of labour market
looseness, reflecting the Committee’s judgement to raise further the equilibrium rate in
this forecast.
Chart 1.2: Unemployment rate projection based on market interest rate

expectations, other policy measures as announced
The fan chart depicts the probability of various outcomes for the ILO definition of unemployment. It has been
conditioned on Bank Rate following a path implied by market yields, but allows the Committee’s judgement on the risks
around the other conditioning assumptions set out in Section 1.1, including wholesale energy prices, to affect the
calibration of the fan chart skew. The coloured bands have the same interpretation as in Chart 1.1, and portray 90% of
the probability distribution. Up to June 2023, this fan chart is based on LFS unemployment data. Beyond this point, the
Committee is drawing on the collective steer from other indicators of unemployment to inform its projection (see Box B).
The fan begins in 2023 Q3, a quarter earlier than for CPI inflation. A significant proportion of this distribution lies below
Bank staff’s current estimate of the long-term equilibrium unemployment rate. There is therefore uncertainty about the
precise calibration of this fan chart.
In projections conditioned on the alternative assumption of constant interest rates at

5.25% over the forecast period, the unemployment rate rises to a greater extent across
the forecast period compared with the MPC’s projection conditioned on market rates, as
the constant rate assumption is above the market curve to an increasing degree beyond
the end of next year.
The risks around the unemployment rate projection are judged to be broadly
balanced.
Reflecting the considerable uncertainties around interpreting estimates from the Labour
Force Survey, there are risks in both directions around the recent path of the
unemployment rate, and hence the outlook for unemployment and labour market
tightness. The labour market could remain tighter than assumed for a number of economic
reasons, including the upside risks around the outlook for demand (Key judgement 1).
Conversely, the labour market could loosen more rapidly than assumed, again including
because of any downside risks to demand.
There also remains significant uncertainty around the Committee’s updated assumption
for the path of the equilibrium rate of unemployment, news in which would, holding
demand fixed, have implications for labour market tightness and inflationary pressures. In
particular, it is difficult to judge how quickly some of the factors pushing up the equilibrium
rate recently could fade over the forecast period, and the extent to which there are greater
structural factors, such as interactions with the benefits system, at play.

Second-round effects in domestic prices and wages are expected to take longer to
unwind than they did to emerge. In the modal forecast conditioned on the market-
implied path of market interest rates, an increasing degree of slack in the economy
and declining external cost pressures lead CPI inflation to return to the 2% target
by the end of 2025 and to fall below target thereafter. The Committee continues to
judge that the risks are skewed to the upside. Taking account of this skew, mean
CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively.
Twelve-month CPI inflation remains well above the MPC’s 2% target, but has fallen back
to 6.7% in both September and in 2023 Q3 as a whole, below expectations in the August
Report. Most of the downside news since the previous Report reflects lower core goods
price inflation. Services inflation has been only slightly weaker than expected in August.
Twelve-month CPI inflation is expected to continue to fall quite sharply in the near term, to
below 5% in October, as the reduction in the Ofgem household energy price cap more
than offsets the impact on motor fuel costs of the recent rise in sterling oil prices (Section
2.3). CPI inflation is projected to decline to an average of 4.6% in 2023 Q4, slightly lower
than expected in the August Report, and then to 4.4% in 2024 Q1 and 3.6% in 2024 Q2
(Table 1.C). This decline is expected to be accounted for by lower energy, core goods and
food price inflation and, beyond January, by some fall in services price inflation.
Based on the latest paths of oil and gas futures prices, the direct energy contribution to
inflation is slightly higher throughout the forecast period than in the Committee’s previous
forecast. In absolute terms, this direct energy contribution remains slightly negative over
the second half of the forecast period.
Four-quarter UK-weighted world export price inflation, excluding the direct effect of oil
prices, is estimated to have been slightly negative in 2023 Q2 and is expected to decline
more sharply over the next year, though by slightly less than anticipated in the August
Report. The weak absolute profile continues to reflect the clearing of global supply chain
bottlenecks and easing producer price pressures, particularly in China. World export price
inflation then turns slightly positive from the middle of 2025, broadly unchanged from the
August Report. The recent depreciation of the sterling exchange rate (Section 1.1) will put
upward pressure on UK import price inflation, and over time on CPI inflation, relative to
the August Report. Overall, import prices are projected to fall by 1¾% in 2023, a lesser fall
than expected in the August Report, and by 3% in 2024 (Table 1.D).
The MPC is continuing to monitor closely indications of persistent inflationary pressures

and resilience in the economy as a whole (Key judgement 1), including a range of
measures of the underlying tightness of labour market conditions (Key judgement 2),
wage growth and services price inflation.
Services CPI inflation has remained elevated and somewhat stronger than can be
explained by a simple empirical model based on developments in labour and non-labour
input costs. There has, however, been some signs of a turning point in a measure of
underlying inflationary pressures in consumer services prices (Chart 2.18).
Annual private sector regular average weekly earnings (AWE) growth has increased
further to 8.0% in the three months to August, materially above expectations in the August
Report. This most recent rise in growth is difficult to reconcile with other indicators of pay
growth (Section 2.3). Most of these have tended to be more stable at rates of growth that
are high but not quite as elevated as the AWE series. For example, a Bank staff proxy for
the private sector based on HMRC PAYE Real Time Information shows median pay
growth of around 7% currently.
Recent outturns in earnings growth have been stronger than standard models of wage
growth, based on productivity, short-term inflation expectations and a measure of
economic slack, would have predicted (Chart 1.3). The near-term outlook for pay growth is
also expected to be somewhat stronger than projected in the August Report. The annual
growth rate of private sector regular AWE is nonetheless still projected to decline in
coming quarters, to below 6% next spring and to just below 5% by the end of 2024. This is
broadly consistent with the forward-looking indications from the Decision Maker Panel and
early evidence from the Bank’s Agents on private sector pay settlements next year.
Chart 1.3: Projections for private sector regular average weekly earnings four-
quarter growth (a)
Sources: Bloomberg Finance L.P., Citigroup, ONS, YouGov and Bank calculations.
(a) The shaded swathe represents a range of projections from three statistical models of nominal private sector regular
average weekly earnings growth, including a wage equation based on Yellen (2017), a wage equation based on
Haldane (2018) and a simple error-correction model based on productivity, inflation expectations and slack. The slack
measure for these models is based on the MPC’s estimate of the unemployment gap. The projections are dynamic,
multi-step ahead forecasts beginning at a point within the models’ estimation periods and are sensitive to data revisions,
which can lead to changes in the swathe over the past as well as over the forecast period.
In the MPC’s modal projection, private sector regular AWE growth falls to around 3% by
the end of the forecast period, as short-term inflation expectations are assumed to fall
back and a margin of spare capacity is expected to open up in the labour market in the
medium term (Key judgement 2). This is a slightly higher medium-term profile for AWE
growth compared with the August Report.
Private sector regular AWE growth is also expected to ease more slowly than the range of
forecasts from a suite of wage models would predict (Chart 1.3). These empirical models
illustrate what could happen if future pay setting is based on inflation expectations that
take account of the sharply downward near-term path of CPI inflation among other factors.
But there is insufficient evidence at present to be confident that wages will be set in this
way.
This difference between empirical model outputs and the November projection is therefore
one way of demonstrating the MPC’s continuing judgement that second-round effects in
both domestic prices and wages are expected to take longer to unwind than they did to
emerge. Reflecting the higher expected path of wage growth, the Committee has decided
in this forecast to increase slightly the scale of its judgement on the persistence of
domestic prices in its modal projection, crystallising further some of the upside risks from
second-round effects that have been incorporated into the mean projection previously.
This is in addition to the Committee’s decision in this forecast to increase the medium-
term equilibrium rate of unemployment (Key judgement 2), which has a similar effect on
increasing the persistence of wage growth and domestic inflationary pressures.
In the MPC’s modal projection conditioned on the market-implied path of interest rates as
captured in the 15-working day average to 24 October, CPI inflation declines to below the
2% target from the end of 2025, as an increasing degree of slack in the economy reduces
domestic inflationary pressures alongside declining external cost pressures. CPI inflation
is projected to be 1.9% in two years’ time and 1.5% in three years (Table 1.C and Chart
1.4). Compared with the August Report modal projection, CPI inflation is expected to
return to close to the 2% target slightly less rapidly in the middle of the forecast period,
reflecting higher energy and other import price inflation, with the latest profile relatively flat
around 2% over the four quarters from 2025 Q2.
Chart 1.4: CPI inflation projection based on market interest rate expectations, other
The fan chart depicts the probability of various outcomes for CPI inflation in the future. It has been conditioned on Bank
Rate following a path implied by market yields, but allows the Committee’s judgement on the risks around the other
conditioning assumptions set out in Section 1.1, including wholesale energy prices, to affect the calibration of the fan
chart skew. If economic circumstances identical to today’s were to prevail on 100 occasions, the MPC’s best collective
judgement is that inflation in any particular quarter would lie within the darkest central band on only 30 of those
occasions. The fan chart is constructed so that outturns of inflation are also expected to lie within each pair of the lighter
orange areas on 30 occasions. In any particular quarter of the forecast period, inflation is therefore expected to lie
somewhere within the fans on 90 out of 100 occasions. And on the remaining 10 out of 100 occasions inflation can fall
anywhere outside the orange area of the fan chart. Over the forecast period, this has been depicted by the grey
background. See the Box on pages 48–49 of the May 2002 Inflation Report for a fuller description of the fan chart and
what it represents.
Table 1.C: The quarterly modal projection for CPI inflation based on market rate
expectations (a)
2023 Q4 2024 Q1 2024 Q2 2024 Q3
CPI inflation 4.6 4.4 3.6 3.3
2024 Q4 2025 Q1 2025 Q2 2025 Q3
CPI inflation 3.1 2.5 2.1 2.1
2025 Q4 2026 Q1 2026 Q2 2026 Q3 2026 Q4
CPI inflation 1.9 1.9 1.7 1.6 1.5
(a) Four-quarter inflation rate.
In the modal projection conditioned on the alternative assumption of constant interest

rates at 5.25% over the forecast period, CPI inflation is expected to be 1.7% and 1.2% in
two years’ and three years’ time respectively (Chart 1.5). These are lower than the
Committee’s modal forecasts at the same horizons conditioned on market rates, as the
constant rate assumption is above the market curve to an increasing degree beyond the
end of next year.
Chart 1.5: CPI inflation projection based on constant interest rates at 5.25%, other
This fan chart depicts the probability of various outcomes for CPI inflation in the future, conditioned on the assumptions
in Table 1.A footnote (b), apart from for Bank Rate, with this chart conditioned on constant interest rates at 5.25%. The
fan chart has the same interpretation as Chart 1.4.
The risks around the modal CPI inflation projection are judged to remain skewed
to the upside.
There remain considerable uncertainties around the pace at which CPI inflation will return
sustainably to the 2% target.
There are near-term risks in both directions around the paths of CPI inflation and pay
growth. On the downside, weakness in non-labour input cost growth, including recent
developments in producer price indices, could lead to a faster-than-expected decline in
consumer goods price inflation. On the upside, the recent rise in private sector regular
AWE growth could prove to be a better guide to near-term wage growth dynamics than
the steer from other indicators of pay.
In the medium term, there remain considerable risks around the Committee’s judgement
that second-round effects in domestic prices and wages are expected to take longer to
unwind than they did to emerge. On the one hand, these risks may be more balanced
following the MPC’s decision this round to increase further its assumption for the medium-
term equilibrium rate of unemployment, owing both to resistance to past losses in real
income and to more persistent labour market frictions (Key judgement 2), and the decision
to increase slightly its judgement on the persistence of domestic prices. On the other
hand, it is possible that the higher path of pay growth puts even greater upward pressure
on domestic price inflation over the forecast period. There could remain an inconsistency
between the wage and domestic price profiles in the modal projections, such that
companies seek to rebuild their squeezed profit margins to a greater extent than has been
assumed. Nevertheless, the Bank’s Agents report that firms generally have limited scope
to rebuild margins significantly by raising their prices.
The pace at which CPI inflation falls back to the 2% target will also depend on inflation
expectations. An upside risk to the inflation outlook is that households and firms are less
confident that inflation will fall back quickly and do not factor such a decline into their
wage and price-setting behaviour. Since the August Report, indicators of household and
corporate short-term inflation expectations have tended to decline further, while medium-
term inflation compensation measures in financial markets have remained above their
long-term averages. The Committee will continue to monitor measures of inflation
expectations very closely and act to ensure that longer-term inflation expectations are
anchored at the 2% target.
There are upside risks around the modal projection for UK CPI inflation from international
factors. There remains the possibility of more persistence in consumer price inflation in
the UK’s major trading partners, for similar reasons to the risks of stronger domestic
inflationary pressures at home including the tightness of labour markets, and wage and
services price inflation remaining elevated for longer than expected.
In addition, geopolitical risks have increased following events in the Middle East. Although
there has so far been only a relatively limited rise in energy prices, uncertainty around
future oil prices has increased and the balance of risks around future oil prices has shifted
from the downside to the upside, as indicated by implied volatilities and risk reversals in
financial markets. A larger shock to energy prices could mean that CPI inflation falls back
to the 2% target more slowly than currently expected, through both direct and second-
round effects, while also leading to weaker growth (Key judgement 1).
Overall, the Committee judge that the risks around the modal projection for CPI inflation
remain skewed to the upside, primarily reflecting the possibility of more persistence in
domestic wage and price-setting, but also the increasing upside risk to inflation from
energy prices now. This pushes up on the mean, relative to the modal, inflation projections
in the forecast. Conditioned on market interest rates, mean CPI inflation is 2.2% and 1.9%
at the two and three-year horizons respectively.
In the mean projection conditioned on the alternative assumption of constant interest rates
at 5.25% over the forecast period, CPI inflation is expected to be 2.0% and 1.6% in two
years’ and three years’ time respectively. This constant rate projection also returns
inflation to the 2% target three quarters earlier than the mean market rate forecast.
Table 1.D: Indicative projections consistent with the MPC's modal forecast (a) (b)
Average Average 2022 2023 2024 2025 2026

1998–2007 2010–19
World GDP 3¼ 2½ 3 1½ (1½) 1¾ (1¾) 2 (2) 2

(UK-
weighted) (c)
World GDP 4¼ 3¾ 3¼ 3 (2¾) 2¾ (2¾) 3 (3¼) 3

(PPP-
weighted) (d)
Euro-area 2¼ 1½ 3½ ½ (½) ¾ (1) 1¾ (1½) 1¾

GDP (e)
US GDP (f) 3 2½ 2 2¼ (1½) 1½ (¾) 1¼ (1½) 1½
Emerging 5½ 5 4 4 (4) 3¾ (3¾) 4 (4¼) 4

market GDP
(PPP-
weighted) (g)
of which, 10 7¾ 3 5¼ (5¼) 4¼ (4½) 4¼ (4¾) 4¼

China GDP (h)
UK GDP (i) 2¾ 2 4¼ ½ (½) 0 (½) ¼ (¼) ¾
Household 3¼ 2 5¼ ½ (½) 0 (¾) ½ (¾) 1

consumption
(j)
Business 3 4¼ 9½ 6¾ (1¾) -1 (-2) 0 (1¾) 2

investment (k)
Housing 3¼ 4 9½ -5¾ (-5¾) -6¾ (-6¼) -2¾ (-3) ¼

investment (l)
Exports (m) 4½ 3½ 8¾ -¾ (-2) ¼ (¼) ¾ (½) 1
Imports (n) 6 4 14¼ -¾ (-3½) 1½ (2) ¾ (1½) 2
Contribution of -¼ -¼ -1¾ 0 (½) -½ (-½) 0 (-¼) -¼

net trade to
GDP (o)
Real post-tax 3¼ 1½ -2¾ ¾ (0) 1 (¾) ½ (½) ¼

labour income
(p)
Real post-tax 3 1½ 0 2 (1¼) ¼ (-¼) ¼ (¼) ½

household
income (q)
Household 7¼ 8 8 9¼ (9¼) 9½ (8½) 9½ (8) 9

saving ratio (r)
Credit spreads ¾ 2½ 1 ¾ (½) 1 (¾) 1¼ (1¼) 1¼

(s)
Excess 0 -1¾ 1¼ ¼ (½) -½ (-¼) -1¼ (-1¼) -1½

supply/Excess
demand (t)
Hourly labour 2¼ ½ ¾ ¼ (-¼) 1¼ (¼) ¾ (¾) ¾

productivity (u)
Employment 1 1¼ ¾ ½ (1) -½ (-½) 0 (0) ¼

(v)
Average 32¼ 32 31½ 31½ (31¾) 31¼ (31¾) 31¼ (31¾) 31¼
weekly hours
worked (w)
Unemployment 5¼ 6 3¾ 4¼ (4) 4¾ (4½) 5 (4¾) 5

rate (x)
Participation 63 63½ 63¼ 63½ (63¾) 63 (63¼) 62¾ (63) 62½

rate (y)
CPI inflation 1½ 2¼ 10¾ 4¾ (5) 3¼ (2½) 2 (1½) 1½

(z)
UK import -¼ 1¼ 12¾ -1¾ (-4½) -3 (-3¼) ¼ (½) 0

prices (aa)
Energy prices ¼ ¼ 3¾ -1¼ (-1½) ½ (½) -¼ (-¼) -¼

– direct
contribution to
CPI inflation
(ab)
Average 4¼ 2 6 6¾ (6) 4¼ (3½) 2¾ (2½) 2

weekly
earnings
(AWE) (ac)
Unit labour 3 1¼ 7 5 (4¾) 3¾ (3) 2¼ (1¾) 1¼

costs (ad)
Private sector 2 1½ 6½ 6 (7½) 3¾ (4) 3 (2½) 2¼

regular pay
based unit
wage costs
(ae)
Sources: Bank of England, Bloomberg Finance L.P., Department for Energy Security and Net Zero, Eurostat, IMF World
Economic Outlook (WEO), National Bureau of Statistics of China, ONS, US Bureau of Economic Analysis and Bank
calculations.
(a) The profiles in this table should be viewed as broadly consistent with the MPC’s projections for GDP growth, CPI
inflation and unemployment (as presented in the fan charts).
(b) Figures show annual average growth rates unless otherwise stated. Figures in parentheses show the corresponding
projections in the August 2023 Monetary Policy Report. Calculations for back data based on ONS data are shown using
ONS series identifiers.
(c) Chained-volume measure. Constructed using real GDP growth rates of 188 countries weighted according to their
shares in UK exports.
(d) Chained-volume measure. Constructed using real GDP growth rates of 189 countries weighted according to their
shares in world GDP using the IMF’s purchasing power parity (PPP) weights.
(e) Chained-volume measure. Forecast was finalised before the release of the preliminary flash estimate of euro-area
GDP for Q3, so that has not been incorporated.
(f) Chained-volume measure. Forecast was finalised before the release of the advance estimate of US GDP for Q3, so
that has not been incorporated. Revisions since August have led to changes in the historical data.
(g) Chained-volume measure. Constructed using real GDP growth rates of 155 emerging market economies, weighted
according to their relative shares in world GDP using the IMF’s PPP weights.
(h) Chained-volume measure.
(i) Excludes the backcast for GDP.
(j) Chained-volume measure. Includes non-profit institutions serving households. Based on ABJR+HAYO.
(k) Chained-volume measure. Based on GAN8.
(l) Chained-volume measure. Whole-economy measure. Includes new dwellings, improvements and spending on
services associated with the sale and purchase of property. Based on DFEG+L635+L637.
(m) Chained-volume measure. The historical data exclude the impact of missing trader intra‑community (MTIC) fraud.
Since 1998 based on IKBK-OFNN/(BOKH/BQKO). Prior to 1998 based on IKBK.
(n) Chained-volume measure. The historical data exclude the impact of MTIC fraud. Since 1998 based on IKBL-
OFNN/(BOKH/BQKO). Prior to 1998 based on IKBL.
(o) Chained-volume measure. Exports less imports.
(p) Wages and salaries plus mixed income and general government benefits less income taxes and employees’ National
Insurance contributions, deflated by the consumer expenditure deflator. Based on [ROYJ+ROYH-(RPHS+AIIV-
CUCT)+GZVX]/[(ABJQ+HAYE)/(ABJR+HAYO)]. The backdata for this series are available at Monetary Policy Report –
Download chart slides and data – November 2023.
(q) Total available household resources, deflated by the consumer expenditure deflator. Based on
[RPQK/((ABJQ+HAYE)/(ABJR+HAYO))].
(r) Annual average. Percentage of total available household resources. Based on NRJS.
(s) Level in Q4. Percentage point spread over reference rates. Based on a weighted average of household and
corporate loan and deposit spreads over appropriate risk-free rates. Indexed to equal zero in 2007 Q3.
(t) Annual average. Per cent of potential GDP. A negative figure implies output is below potential and a positive figure
that it is above.
(u) GDP per hour worked. Hours worked based on YBUS.
(v) Four-quarter growth in the ILO definition of employment in Q4. Up to June 2023, this projection is based on LFS
employment data (MGRZ). Beyond this point, the Committee is drawing on the collective steer from other indicators of
employment to inform its projection.
(w) Level in Q4. Average weekly hours worked, in main job and second job. Based on YBUS/MGRZ up to June 2023.
(x) ILO definition of unemployment rate in Q4. Up to June 2023, this projection is based on LFS unemployment data
(MGSX). Beyond this point, the Committee is drawing on the collective steer from other indicators of unemployment to
inform its projection.
(y) ILO definition of labour force participation in Q4 as a percentage of the 16+ population. Up to June 2023, this
projection is based on LFS participation data (MGWG).
(z) Four-quarter inflation rate in Q4.
(aa) Four-quarter inflation rate in Q4 excluding fuel and the impact of MTIC fraud.
(ab) Contribution of fuels and lubricants and gas and electricity prices to four-quarter CPI inflation in Q4.
(ac) Four-quarter growth in whole‑economy total pay in Q4. Growth rate since 2001 based on KAB9. Prior to 2001,
growth rates are based on historical estimates of AWE, with ONS series identifier MD9M.
(ad) Four-quarter growth in unit labour costs in Q4. Whole‑economy total labour costs divided by GDP at constant
prices. Total labour costs comprise compensation of employees and the labour share multiplied by mixed income.
(ae) Four-quarter growth in private sector regular pay based unit wage costs in Q4. Private sector wage costs divided by
private sector output at constant prices. Private sector wage costs are average weekly earnings (excluding bonuses)
multiplied by private sector employment.
Box A: Monetary policy since the August 2023 Report

At its meeting ending on 20 September 2023, the MPC voted by a majority of 5–4 to
maintain Bank Rate at 5.25%. Four members preferred to increase Bank Rate by
0.25 percentage points, to 5.5%. The Committee also voted unanimously to reduce
the stock of UK government bond purchases held for monetary policy purposes,
and financed by the issuance of central bank reserves, by £100 billion over the next
12 months, to a total of £658 billion.
Since the MPC’s previous meeting, global growth had evolved broadly in line with
the August Report projections, albeit with some differences across regions. Spot oil
prices had risen significantly, while underlying inflationary pressures had remained
elevated across advanced economies.
UK GDP was estimated to have declined by 0.5% in July and the S&P Global/CIPS
composite output PMI fell in August, although other business survey indicators
remained consistent with positive GDP growth. While some of this news could
prove erratic, Bank staff expected GDP to rise only slightly in 2023 Q3. Underlying
growth in the second half of 2023 was also likely to be weaker than expected.
There had been some further signs of a loosening in the labour market, although it
remained tight by historical standards. The vacancies to unemployment ratio had
continued to decline, reflecting both a steady fall in the number of vacancies and
rising unemployment. The Labour Force Survey unemployment rate had risen to
4.3% in the three months to July, higher than expected in the August Report.
Indicators of employment had generally softened against the backdrop of subdued
activity.
Annual private sector regular average weekly earnings (AWE) growth had
increased to 8.1% in the three months to July, 0.8 percentage points above the
August Report projection. The recent path of the AWE was, however, difficult to
reconcile with other indicators of pay growth. Most of these had tended to be more
stable at rates of growth that were elevated but not quite as high as the AWE series.
Twelve-month CPI inflation fell from 7.9% in June to 6.7% in August, 0.4 percentage
points below expectations at the time of the Committee’s previous meeting. Core
goods CPI inflation had fallen from 6.4% in June to 5.2% in August, much weaker
than expected in the August Report. Services CPI inflation rose from 7.2% in June
to 7.4% in July but declined to 6.8% in August, 0.3 percentage points lower than
expected in the August Report. Some of those movements were linked to services
such as airfares and accommodation that tend to be volatile over the summer
holiday period. Excluding these travel-related components, services inflation had
been more stable at continued high rates, albeit slightly weaker than expected.
CPI inflation was expected to fall significantly further in the near term, reflecting
lower annual energy inflation, despite the renewed upward pressure from oil prices,
and further declines in food and core goods price inflation. Services price inflation,
however, was projected to remain elevated in the near term, with some potential
month-to-month volatility.
Developments in key indicators of inflation persistence had been mixed, with the
acceleration in the AWE not apparent in other measures of wages and with some
downside news on services inflation. There were increasing signs of some impact of
tighter monetary policy on the labour market and on momentum in the real
economy more generally. Given the significant increase in Bank Rate since the start
of this tightening cycle, the current monetary policy stance was restrictive.
The MPC would continue to monitor closely indications of persistent inflationary

pressures and resilience in the economy as a whole, including the tightness of
labour market conditions and the behaviour of wage growth and services price
inflation. Monetary policy would need to be sufficiently restrictive for sufficiently long
to return inflation to the 2% target sustainably in the medium term, in line with the
Committee’s remit. Further tightening in monetary policy would have been required
if there were evidence of more persistent inflationary pressures.
2: Current economic conditions
Global growth continues to be subdued, with stronger growth in the US offset by

weaker growth in the euro area. Consumer price inflation remains elevated in
advanced economies, but it has been falling this year. Global export prices are
declining, reflecting lower energy prices, the continued clearing of supply chain
bottlenecks and weak producer price inflation. The paths for policy rates implied by
financial markets suggest rates are at or near their peaks in the UK, US and euro
area.
UK economic growth is slowing. Based on the steer from a range of business

surveys, the level of GDP is expected to increase only slightly over 2023 H2,
weaker than the growth over 2023 H1, and the projection in the August Report.
Some of this slowing is likely to reflect the impact of the tightening in monetary
policy that has been needed to combat high inflation.
The labour market remains tight but there are clear signs of loosening, with the
slowdown in output growth feeding into a softening of labour demand and an easing
of recruitment difficulties. Despite that loosening, all indicators suggest that nominal
wage growth is still very high. But the recent rise in the official measure of pay
growth is not matched by other wage data, and forward-looking indicators suggest
that wage growth will fall back in 2024.
Since the August Report, CPI inflation has fallen, dropping from 7.9% in June to
6.7% in September, 0.3 percentage points lower than the projection in August. It
remains well above the MPC’s 2% target, however. Inflation is expected to fall
further to 4.6% in 2023 Q4 and 4.4% in 2024 Q1. The majority of that near-term
decline is accounted for by a falling contribution from household gas and electricity
bills. Falling input price inflation is likely to reduce both consumer goods price
inflation and food price inflation, while services price inflation is projected to remain
elevated in the near term.
Chart 2.1: GDP growth is expected to be flat in 2023 H2, the unemployment rate is
expected to continue to drift up and inflation is expected to have fallen in October
Near-term projections (a)
Sources: ONS and Bank calculations.
(a) The lighter diamonds show Bank staff’s projections at the time of the August 2023 Monetary Policy Report. The
darker diamonds show Bank staff’s current projections. Projections for GDP growth and the unemployment rate are
quarterly and show 2023 Q3 and Q4 (August projections show Q2 to Q4). Projections for CPI inflation are monthly and
show October to December 2023 (August projections show July to September 2023). GDP growth rate 2023 Q3
projections are based on official data to August, the CPI inflation figure is an outturn. For unemployment, up to 2023 Q2
the series is based on official LFS data. Beyond this point, the Committee is drawing on the collective steer from other
indicators of unemployment to inform its projection.
2.1: Global developments and domestic credit conditions

Global growth remains subdued…
Global growth has remained subdued over the course of 2023. UK-weighted world GDP is
expected to have grown by around 0.4% in 2023 Q3, similar to Q2 and broadly in line with
the projection in the August Report. Four-quarter growth in 2023 Q3 is expected to be
around 1.5%, below its 2010–19 average of 2.4%. The latest indicators, such as cross-
country purchasing managers’ indices (PMIs), suggest that global GDP growth is likely to
remain weak in Q4.
Chart 2.2: Global GDP growth continues to be subdued

UK-weighted world four-quarter GDP growth (a)
Sources: Refinitiv Eikon from LSEG and Bank calculations.
(a) See footnote (c) of Table 1.D for definition. Figures for 2023 Q3 to 2024 Q2 are Bank staff projections. These
projections do not include the advance estimate of US 2023 Q3 GDP and the preliminary flash estimate of euro area
2023 Q3 GDP, which were released after the data cut-off.
…with notable regional differences.

Although aggregate global growth has evolved largely as expected, growth in major
economies has been diverging. In particular, US GDP growth has been stronger, while the
euro area has seen weaker GDP growth. Chinese GDP grew more rapidly than expected
in Q3, but has been weaker than before the Covid pandemic for the last few years.
US GDP rose by 1.2% according to the advance estimate for 2023 Q3, faster than
projected in the August Report. US growth has been around its pre-pandemic average in
recent quarters despite the sharp tightening in monetary policy. Household consumption
has grown more quickly than household incomes over 2022–23. This suggests that US
households in aggregate have been more willing to run down the significant increase in
savings accrued during the Covid pandemic (de Soyres et al (2023) provide an
international comparison). The US has also been less exposed to global energy price
shocks than Europe, as it is not reliant on gas supplies from Russia. When wholesale gas
prices peaked in August 2022, European prices were over 10 times higher than in North
America (Broadbent (2023)).
In the euro area, quarterly GDP fell by 0.1% in the 2023 Q3 preliminary flash estimate,
following weak growth of around 0.1% in both Q1 and Q2. Tighter monetary policy has
reduced growth, and retail energy prices remain high, despite having fallen since late
2022, which has weighed on real incomes and spending. Euro-area households have also
tended to maintain savings built up over the pandemic period, rather than spending them.
Recent analysis by staff at the ECB (Battistini et al (2023)) shows that most of the
increase in household savings has been invested in financial assets such as equities and
bonds, rather than in more liquid deposits. This suggests that household savings are less
likely to be run down in the near term.
In China, GDP grew by 1.3% in 2023 Q3, up from 0.5% in Q2. Even including 2023 Q3,
Chinese GDP growth has slowed since the Covid pandemic. Quarterly GDP growth has
averaged around 1% since 2021, whereas 1.5% or more was typical before the pandemic.
Other indicators of activity such as PMIs and retail sales have softened on the quarter.
Activity in the property sector, which plays a significant role in China’s economy, continued
to be weak, with property starts falling by more than 15% over the 12 months to
September. While only around 5% of UK exports go to China, its key role in global trade
means that the indirect effect, via mutual trading partners, of changes in Chinese demand
on the UK can be more significant. And there are other channels, for example via financial
markets, through which developments in China can affect the UK (Gilhooly et al (2018)).
Consumer price inflation in advanced economies remains elevated, but it is

declining…
Headline inflation rates in the UK, euro area and US have all fallen this year. This largely
reflects lower energy price inflation, although food and goods price inflation have also
declined, particularly in the US. Nonetheless, inflation remains above central bank targets.
In the US, the annual rate of PCE inflation was 3.4% in September, while in the euro area
the HICP inflation rate fell to 2.9% in the flash estimate for October. Underlying inflationary
pressures have remained elevated across the three regions. Services inflation remains
high, as does wage growth. Measures such as the vacancies to unemployment ratio
suggest that labour markets remain tighter than before the pandemic, even with the recent
loosening in the US and in the UK.
…while global export prices have fallen...

Global export price inflation has eased markedly over the past year, with prices falling
across regions in 2023 Q2 (Chart 2.3). This reflects the indirect effects of lower energy
prices, the continued clearing of supply chain bottlenecks and weak producer price
inflation. Measures of shipping costs have stabilised around their levels before the
pandemic, having been significantly elevated in 2021–22.
Chart 2.3: Global export price inflation has fallen significantly

Quarterly change in export prices (a)
Sources: ECB, General Administration of Customs of the People’s Republic of China, US Bureau of Economic Analysis,
other national statistical agencies, and Bank calculations.
(a) ‘Rest of world’ is a weighted average of 31 countries, including China and excluding major oil exporters. Countries
are weighted by their share of UK imports. The final data points refer to 2023 Q2.
…although global energy prices have risen since August, and the risk of them
rising further has increased.
While global energy prices remain significantly below the levels seen in 2022, they have
increased since the August Report. Spot oil prices reached around £75 per barrel in
September, and November 2023 futures prices have risen by about 20% since the August
Report (Chart 2.4).
Given the subdued outlook for global activity, demand factors are unlikely to have put
much upward pressure on oil prices. But oil supply has been reduced by cuts in
production by OPEC and Russia, amounting to two million barrels per day over 2023.
Wholesale gas spot prices have also risen, but remain significantly lower and less volatile
than in 2022. Wholesale gas futures prices are little changed since August (Chart 2.4).
European gas storage levels are high compared with recent years, reducing the likelihood
of shortages over the winter.
The risk of energy prices rising further has increased following recent events in the Middle
East (Section 1).
Chart 2.4: Oil prices have increased since the August Report, while gas futures
prices are little changed
UK wholesale gas and oil prices (a)
Sources: Bloomberg Finance L.P. and Bank calculations.
(a) Oil prices are Brent crude, converted to sterling. Gas prices are Bloomberg UK NBP Natural Gas Forward Day price.
Dashed lines refer to respective futures curves using one-month forward prices based on the 15-day average to 24
October, while dotted lines are based on the 15-day average to 25 July. The final data points refer to futures curves at
December 2026.
Market expectations suggest policy rates are at or near their peaks.

Over the past two years, central banks in the UK, US and euro area have tightened policy
(Chart 2.5). Since August, the ECB Governing Council raised its key policy rates by 25
basis points in September and held rates on 26 October, leaving the deposit facility rate at
4%. In the US, the FOMC has kept the target range for the federal funds rate unchanged
at 5.25%–5.5%.
In both the US and euro area, market-implied paths for policy rates are consistent with no
further increases in this tightening cycle. Since the August Report, the market-implied path
for policy rates in the euro area is little changed, while the path for US rates is, on
average, around 50 basis points higher (Chart 2.5).
Chart 2.5: Interest rates are at or close to the peak of their market-implied paths in
the US, euro area and UK
Policy rates and forward curves for the US, euro area and UK (a)
(a) All data as of 24 October 2023. The August curves are estimated based on the 15 UK working days to 25 July 2023.
The November curves are estimated using the 15 working days to 24 October 2023. Federal funds rate is the upper
bound of the announced target range. ECB deposit rate is based on the date from which changes in policy rates are
effective. The final data points refer to futures curves at September 2026.
UK policy rate expectations have fallen since August...

Since the August Report, market expectations of UK policy rates have fallen by about 60
basis points over the next three years, on average (Chart 2.5). The market curve has also
flattened. The UK curve remains broadly above the US and euro area, although the gap
has narrowed.
Partly reflecting stronger demand in the US leading the dollar to appreciate, and a smaller
differential between expected policy rates in the UK and the US and euro area, the
sterling effective exchange rate has depreciated by about 2.3% since the August Report.
Sterling has fallen by 5.5% against the dollar, and by 1% against the euro.
Yields on 10-year government bonds have risen since August across advanced
economies. This partly reflects market expectations that policy rates will remain higher for
longer. But models used by Bank staff to analyse movements in long-term bond yields
suggest it also reflects a rise in term premia – the compensation that investors require for
the risks associated with holding government bonds of longer duration.
…and UK fixed-rate mortgage rates have declined.

Fixed-rate mortgages make up around 80% of the stock of UK mortgages, and the rates
on new fixed-rate mortgages are influenced by expectations of Bank Rate (Box C of the
February 2022 Report). Since August, quoted fixed-rate mortgage rates have fallen,
largely reflecting pass-through of lower reference rates, but they remain substantially
higher than at the start of the Bank Rate tightening cycle (Chart 2.6). Analysis by Bank
staff has found that the pass-through from reference rates to mortgage rates has occurred
largely as expected during this period as a whole (Box B of the May 2023 Report).
Interest rates on new fixed-rate savings bonds, which, like new fixed-rate mortgage rates,
are influenced by expectations of Bank Rate, have ticked down slightly in the most recent
data. Instant access savings accounts tend to be priced relative to current Bank Rate, and
pass-through from previous increases in Bank Rate has been slow. However, the recent
data suggest this has accelerated, with average quoted rates increasing by around 90
basis points between June and October, although the spread between instant access
deposit rates and Bank Rate remains wide (Chart 2.6). Some of this acceleration may be
driven by banks and building societies responding to the FCA’s action plan on cash
savings, which aims to ensure firms appropriately reflect changes in Bank Rate in the
rates they offer to depositors.
Chart 2.6: Rises in reference rates have fed through to mortgage rates, and
increasingly deposit rates
Average quoted interest rates on two-year fixed-rate mortgages, fixed-rate savings bonds,
instant access accounts, and the respective reference rates (a)
Sources: Bank of England, Bloomberg Finance L.P. and Bank calculations.
(a) The reference rate for mortgages and fixed-rate savings bonds is the two-year overnight index swap (OIS) rate. The
Bank’s quoted rates series are weighted monthly average rates advertised by all UK banks and building societies with
products meeting the specific criteria. In February 2019 the method used to calculate these data was changed. For
more information, see Introduction of new Quoted Rates data – Bankstats article. Diamonds for mortgage and
saving products represent averages of daily quoted rates using data to 24 October and were provisional. OIS rate and
Bank Rate show monthly averages and the respective diamonds show the average of daily rates to 24 October.
Interest rates on bank loans to UK businesses have been rising, reflecting the increase in
Bank Rate. In the latest data for August, the interest rate on new bank loans stood at
nearly 7%, compared to around 2% at the start of the tightening cycle.
Larger companies are able to borrow from capital markets, for example by issuing bonds.
While spreads over risk-free rates on both high-yield and investment-grade corporate
bonds have narrowed by around 90 basis points since late last year, higher risk-free rates
have increased the overall cost of issuing bonds.
Credit availability is tightening, reflecting increased credit risk.

The availability of mortgage credit declined in 2023 Q3, continuing the trend of the last
two years, according to the latest Credit Conditions Survey (CCS). Tighter wholesale
funding conditions and expectations for house prices were the most significant factors
reported to be reducing credit availability. The availability of unsecured credit fell slightly
on the quarter, although lenders expected little change over the next three months.
Businesses are reporting a decline in credit availability. The credit availability balance in
the Deloitte CFO Survey, which covers large companies, has fallen, although it remains
significantly above the levels seen during the global financial crisis. Data from the latest
Federation of Small Businesses Index suggest that credit availability is tightening for
SMEs, although fewer than half of UK SMEs use any external financing, according to the
2023 Q2 BVA BDRC SME Finance Monitor. In the CCS, lenders reported that credit
availability to the corporate sector was largely unchanged in 2023 Q3.
The FPC has judged that the tightening of lending standards seen over recent quarters
reflects increased credit risk, rather than defensive actions by banks to protect their
capital positions (Financial Policy Summary and Record – October 2023).
Credit volumes are subdued for both households and businesses, in part
reflecting weak demand for credit.
Growth in mortgage lending has been falling, and is approaching the low rates seen
immediately following the global financial crisis. This lower growth has been driven by a
reduction in gross mortgage lending, with repayments by mortgagors broadly flat.
Mortgage approvals have been somewhat lower than the 2010–19 average, suggesting
subdued lending volumes will continue in the near term. Section 3.3 discusses the impact
of higher interest rates on the housing market, and how that affects the outlook for
demand.
Net finance raised by companies continues to be weak, driven in part by subdued demand
for credit. A majority of lenders in the CCS reported that demand for corporate lending had
contracted in 2023 Q3, continuing a broad trend over the previous four quarters. In the
year to September, UK non-financial companies made net repayments of around £17
billion of financing, well below the 2010–19 average for the same point in the year of a
roughly £10 billion increase in borrowing. Weakness in net bank lending is particularly
pronounced among SMEs. Much of this is due to continued repayment of borrowing under
Covid loan schemes.
Money growth has continued to slow.

Broad money growth has continued to slow. The annual growth rate fell to -4.2% in
September. The sharp decline in the latest month largely reflects base effects related to a
large increase in broad money one year ago, associated with developments at liability-
driven investment funds. The growth rate of M4 excluding other financial corporations fell
by less, to -0.7% (Chart 2.7). More generally, money growth is well below the 2010–19
average of 3.8% and has decelerated significantly since 2020–21. The slowing in money
growth has been driven by a reduction in net lending by banks, particularly in net lending
to other financial institutions, as well as sales from the Bank’s asset purchase facility,
which tend to reduce the level of bank deposits.
Chart 2.7: Aggregate money and lending growth have slowed

Twelve-month growth rate of aggregate money and lending (a)
(a) Aggregate money, excluding other financial corporations refers to M4 excluding other financial corporations (OFCs).
Aggregate money and aggregate lending refer to M4 and M4 lending respectively, both excluding intermediate other
financial corporations (IOFCs). OFCs are corporations engaged in financial services that are not banks nor building
societies, for example insurance companies and pension funds. IOFCs are specialised entities that mainly provide
intermediation services to banks and building societies. Only quarterly data are available for the aggregate money and
aggregate lending series from 1998 Q4 to 2010 Q2. All other data are at a monthly frequency. The final data points refer
to September 2023. For more information on these data, see Further details about M4 data, Further details about
M4 excluding intermediate other financial corporations (OFCs) data and Further details about M4 lending
excluding lending to intermediate other financial corporations data.
2.2: Domestic activity and the labour market

UK GDP growth averaged around ¼% per quarter over 2023 H1.
Latest estimates suggest GDP increased by 0.2% in 2023 Q2, down a little from 0.3%
growth in Q1 but marginally stronger than expected in the August Report. Household
consumption and business investment boosted headline GDP, while housing investment
dragged on growth (Chart 2.8). Although Q2 GDP grew only slightly on the previous
quarter, the latest annual ONS Blue Book revisions shifted up the level of GDP by around
2% (Box C).
Chart 2.8: GDP is expected to be broadly flat in 2023 H2

Contributions to quarterly GDP growth (a)
(a) Diamonds show quarterly headline GDP growth. Figures for 2023 Q3 and Q4 are Bank staff projections.
Economic activity is expected to be flat in Q3.

Based on ONS data to August, UK GDP is expected to have been flat in 2023 Q3, weaker
than expected in August. Output growth was volatile within the quarter, in part reflecting
the impact of strikes and poor weather. Monthly output was estimated to have fallen by
0.6% in July before rebounding slightly in August, increasing by 0.2% on the month.
Breaking down GDP by expenditure category (Chart 2.8), housing investment is expected
to have continued to contribute negatively to growth in 2023 Q3, as higher interest rates
weighed on house building and housing transactions. Business investment is also
expected to have dragged on growth: strong business investment in the first half of the
year was partly driven by volatile components such as aircraft investment, and that is
expected to unwind. Household consumption is expected to have continued to contribute
positively to GDP growth, though to a lesser extent than in 2023 H1. Positive real income
growth is expected to have provided some support to household spending, while higher
interest rates have reduced consumption through a range of channels (Section 3).
Some business surveys point to a fall in output in Q4…

The S&P Global/CIPS UK composite current output PMI has been below the 50 ‘no
change’ mark for several months, consistent with a fall in Q4 GDP based on historical
relationships (Chart 2.9). The S&P Global/CIPS UK composite new orders and new export
orders have also been weak.
Contacts of the Bank’s Agents’ report subdued demand and growing concerns about the
economic outlook, most notably from contacts in consumer-facing sectors.
Chart 2.9: Some survey measures suggest economic activity growth will weaken in
2023 H2, while forward-looking measures are less pessimistic
Survey indicators of UK output growth (a)
Sources: S&P Global/CIPS and Bank calculations.
(a) A reading of above 50 indicates an increase on the previous month while a reading below 50 indicates a fall. Dashed
lines represent the long-run series averages, calculated from January 1998 for the current output and new orders series
and July 2012 for the output expectations series. Latest data are flash estimates for October 2023.
…but some more forward-looking business survey indicators are less pessimistic
about growth prospects.
Some more forward-looking business survey indicators suggest GDP growth could be
more resilient. The S&P Global/CIPS UK future output PMI series, which asks firms about
their expectations for output in 12 months’ time, is only a little below its long-run average
(Chart 2.9). Other similarly forward-looking business activity indicators, such as the latest
Lloyds Business Barometer and the British Chambers of Commerce’s Quarterly
Economics Survey, have also remained consistent with positive GDP growth.
Overall, Bank staff project a 0.1% increase in GDP in Q4. The 2023 H2 projection is
weaker than expected in the August Report.
Combining the steers from a range of business surveys, among which the near-term
output balances get the greatest weight, Bank staff expect GDP growth of 0.1% in 2023
Q4. The projection for broadly flat output over the second half of 2023 is weaker than the
August projection of around ¼% growth per quarter. The anticipated softening in growth
chimes with the weakening observed across several other near-term indicators, such as
those for employment growth, the housing market and global activity (Section 2.1).
The softening in activity is affecting labour demand.

Timely measures of labour demand have softened against a backdrop of subdued activity.
Vacancies edged down further from their 2022 peaks in the three months to September.
The S&P Global/CIPS UK composite employment PMI has also been in contractionary
territory for a couple of months (Chart 2.10). The permanent staff placements index from
the KPMG/REC UK Report on Jobs was below its historical average in September.
Official estimates of employment growth have also weakened. The most recent ONS
Workforce Jobs and HMRC payrolls data point to a modest but positive quarterly growth in
employment in Q3, and a small contraction in employment growth in Q4. There have been
notable uncertainties surrounding recent Labour Force Survey (LFS) estimates. These
have made the data harder to interpret and have resulted in the ONS temporarily pausing
its publication of LFS estimates following the June data (Box B). Alternative experimental
statistics published by the ONS, which take the LFS employment estimate in the three
months to June and project it forward in line with the HMRC payrolls data thereafter,
suggest that employment fell by 0.2% in the three months to August. As experimental
statistics, these estimates need to be interpreted with caution.
Chart 2.10: Most indicators of employment growth are softening

Indicators of employment growth (a) (b)
Sources: Bank of England Agents, HMRC, KPMG/REC/S&P Global UK Report on Jobs, Lloyds Business Barometer,
ONS, S&P Global/CIPS and Bank calculations.
(a) ONS employment growth is the change in headline employment level for people aged 16+ over the value three
months earlier. Employment indicators include data from: ONS/HMRC Pay As You Earn (the three-month change in the
monthly number of PAYE employees), the Bank’s Agents (employment intentions over the next six months);
KPMG/REC/S&P Global (weighting together the temporary and permanent staff placements series); Lloyds Business
Barometer (balance of higher staffing levels over next 12 months); and S&P Global/CIPS (PMI composite employment
index). The surveys and Agents’ scores have varying samples and questions but have been mean and variance
adjusted to match the ONS employment growth series between 2000 and 2019, and are therefore shown consistent
with the three-month on three-month growth rate. The final data point for ONS employment growth is the three months
to August 2023.
(b) The LFS employment growth series shown here uses official LFS estimates to June 2023 and thereafter uses the
ONS’s experimental alternative labour market statistics (based on HMRC payrolls data). See Box B for further
information.
Bank staff take a combined steer from a wide range of indicators to inform their view
about underlying employment growth. Daniell and Moreira (2023) describes how these
indicators feed into the near-term forecast and the evolution of this indicator-based model
forecast over time is shown in the aqua line in Chart 2.11. The indicator-based model
suggests that employment growth has slowed gradually since end-2021. The latest staff
projections suggest employment will be broadly flat over the second half of 2023.
Chart 2.11: An indicator-based model points to flat employment in 2023 Q4

Measures of quarterly employment growth (a) (b)
Sources: Bank of England Agents, HMRC, KPMG/REC/S&P Global UK Report on Jobs, Lloyds Business Barometer,
ONS, S&P Global/CIPS and Bank calculations.
(a) LFS employment growth is the change in headline employment level for people aged 16+ over the value in the
previous quarter. Latest data point is for 2023 Q2.
(b) Bank staff’s indicator-based model of near-term employment growth uses mixed-data sampling (or MIDAS)
techniques (see Daniell and Moreira (2023) for more detail). A range of indicators inform the model, including series
from the Bank of England Agents, the Lloyds Business Barometer, ONS/HMRC PAYE payrolls, S&P Global/CIPS
purchasing managers’ index and the KPMG/REC UK Report on Jobs. Indicators are weighted together according to
their relative forecast performance in the recent past. Diamonds represent projections for 2023 Q3 and Q4.
Labour force participation has increased from its mid-2022 trough.

The ONS’s estimate of the proportion of working-age people in the labour force is also
affected by the uncertainties surrounding the LFS estimates, with the participation rate
probably overestimated (Box B). These issues notwithstanding, the rise in participation
since mid-2022 has been partly driven by a return of students to the labour force. Those
reporting they are outside the labour force due to looking after family or the home and
retirement has also declined. The number of people saying they are unable to participate
in the workforce due to sickness remains elevated, however, and is just over half a million
higher than before the pandemic.
The labour market is loosening, and by a little more than projected in the August
Report…
A range of evidence points to the labour market having loosened, consistent with a
restrictive stance of monetary policy. The ONS vacancies to unemployment ratio, a key
measure of labour market tightness, has been falling since August 2022. This reflects both
a steady fall in the number of vacancies and rising unemployment (right panel of Chart
2.12). The ONS’s alternative experimental statistics, which take the LFS unemployment
estimate in the three months to June and project it forward in line with the claimant count
data thereafter, suggest that the unemployment rate may have increased to 4.2% in the
three months to August. This would be higher than expected in the August Report. The
unemployment rate is projected to rise a little further in 2023 Q4.
While there are significant uncertainties around the LFS data at present (Box B), other
indicators are also indicative of a loosening in the labour market. Recent KPMG/REC
Report on Jobs surveys have pointed to some easing of recruitment difficulties and a pick-
up in staff availability. This is consistent with evidence from the ONS’s Business Insights
and Conditions Survey, in which the number of firms reporting difficulties recruiting has
trended down in recent months. The latest recruitment difficulties score from the Bank’s
Agents has also fallen back from its peak in mid-2022, though it remains above its
historical average. Despite the reported easing in hiring constraints, Agents’ contacts
reported that persistent skills shortages remain in some sectors.
…but it remains tight by historical standards.

Despite evidence that the labour market is loosening, it remains tight in a historical
context. The vacancies to unemployment ratio is still elevated, and above its 2019 Q4
level (left panel of Chart 2.12). And it is noteworthy that the period immediately before the
pandemic was one where there was considered to be little spare capacity in the labour
market (see November 2019 Report).
Another measure of labour market tightness is the gap between the current
unemployment rate and the equilibrium rate of unemployment. The equilibrium rate of
unemployment – which is not observable and has to be estimated – is defined as the rate
consistent with meeting the inflation target in the medium term (see Box 4 of the February
2018 Report). If the unemployment rate is below this equilibrium rate that tends to put
upwards pressure on wage growth and inflation, as companies need to pay more to
recruit suitably skilled staff.
The long-term equilibrium unemployment rate changes only slowly over time, determined
by structural features of the economy that affect the time it takes for people to find the
right jobs. The MPC’s latest estimate suggests that the long-term equilibrium
unemployment rate is just above 4% (see Section 3 of the February 2023 Report). The
Committee will revisit this estimate as part of its forthcoming supply stocktake.
The medium-term equilibrium unemployment rate is more relevant for determining the
degree of slack in the labour market and hence wage pressures, however. It can be
affected by cyclical factors, such as changes in the mix of jobs and job seekers. Wage
growth has been higher than standard models would have predicted (Chart 2.14), which
could be explained by a rise in the medium-term equilibrium unemployment rate. For
example, the rate may have increased if employees and domestic firms have sought
compensation in the form of higher nominal pay and domestic selling prices for the
reductions in real incomes that they have experienced after the terms of trade shock.
There is also some evidence that the efficiency with which vacancies are matched to
those seeking work has decreased in recent years. In its November forecast, the MPC
has made a judgement to further increase the medium-term equilibrium unemployment
rate since the sharp rise in energy prices – it is judged to be around 4½% currently (Key
judgement 2 in Section 1).
Chart 2.12: The labour market remains tight, although it has loosened since mid-
2022
Vacancies to unemployment ratio and contributions to changes in vacancies to unemployment
ratio since 2019 Q4 (a)
(a) Latest data points are for the three months to August 2023. The LFS unemployment series shown in these charts
use the official LFS estimates to June 2023 and thereafter use the ONS’s experimental alternative labour market
statistics (based on claimant count data). See Box B for further information.
2.3: Wage growth and inflation

Despite a loosening labour market, nominal wage growth is still high.
Alongside labour market tightness and services CPI inflation, the MPC monitors various
measures of wage growth as they could indicate independent evidence of more persistent
domestic inflationary pressures. The ONS measure of annual private sector regular
average weekly earnings (AWE) growth was 8.0% in August. This was 0.8 percentage
points higher than expected in the August Report, largely accounted for by upward
revisions to previous months’ data. This measure had been on an upward trend between
February and June, before falling back slightly in July and August.
Chart 2.13: Annual private sector regular pay growth stood at 8.0% in August,
higher than other indicators
Measures of annual private sector wage growth (a)
Sources: DMP Survey, Indeed Hiring Lab, ONS and Bank calculations.
(a) The adjusted HMRC Real Time Information (RTI) measure strips out pay in sectors with a high share of public
workers, such as public administration and defence, social security, education, health and social work, to proxy private
sector wage developments. In contrast to the AWE measure of private sector regular pay, RTI data include bonus
payments. The latest data are for August 2023 (ONS private sector regular pay), September 2023 (HMRC RTI and
Indeed Wage Tracker) and October 2023 (Bank DMP) respectively.
While all measures of pay growth are elevated, the recent rise in the annual rate of
growth of private sector regular AWE is not matched by other indicators.
Other pay indicators have been more stable at rates of growth that are also high, but do
not show a further rise in recent months (Chart 2.13). According to the DMP, annual pay
increases have been steady at around 7% between April and October. HMRC
administrative data on payrolls suggest that median private sector pay growth was broadly
flat at around 7% in the months leading up to September. The Indeed Wage Tracker,
which measures the average annual change in the wages stated in job adverts, points to
wage growth falling back slightly to around 7% between April and September. Meanwhile,
contacts of the Bank’s Agents continue to report that average annual pay settlements
were in the region of 6% to 6.5%.
The AWE data are based on the Monthly Wages and Salaries Survey (MWSS), covering a
representative sample of 9,000 firms with more than 20 employees. The MWSS is
separate from the LFS and is not subject to falling response rates because firms are
legally obliged to respond. Some of the recent divergence between the AWE measure and
the other indicators could reflect sampling variability or differences in methodology and
data coverage. For example, the MWSS and other surveys can be affected by differences
in the characteristics of surveyed firms and the full population of firms, while the HMRC
RTI estimates are based on the PAYE system that collects income tax and national
insurance from employment and therefore covers all firms. In addition, in contrast to
HMRC RTI median pay growth, the AWE measure of average pay growth will be sensitive
to changes in pay across the whole wage distribution.
The MPC will continue to monitor all data on pay growth. While the recent rise in the
annual rate of growth of private sector regular AWE is not mirrored in other indicators, all
pay measures continue to signal that wage growth is high and, if sustained, not consistent
with inflation returning to target in the medium term.
A looser labour market and falling inflation are expected to contribute to a

moderation in wage growth…
Labour market tightness has played a role in elevated nominal wage growth to date, and
the August 2023 Report highlighted tentative evidence that it explains some of the wide
variation in pay growth across sectors. The unexplained strength in pay growth recently
may reflect a rise in the medium-term equilibrium unemployment rate (Section 2.2), as
well as stronger second-round effects of external cost shocks on inflation in wages and
domestic prices. With the labour market now loosening, and inflation set to moderate,
some of the upward pressures on wage growth should ease in 2024.
Wage growth tends to rise when headline inflation and inflation expectations increase.
Near-term inflation expectations in particular tend to be strongly correlated with current
headline inflation (Chart 2.19). Rising headline inflation, and the associated increase in
near-term inflation expectations, appear to have played a role in supporting wage growth
since 2021 (Chart 2.14). As headline inflation and near-term inflation expectations have
started to fall, they are likely to exert less upward pressure on pay growth in 2024.
Chart 2.14: Easing labour market tightness and falling inflation expectations
should reduce pay growth in the near term
Contributions to annual private sector regular pay growth (a)
(a) Wage equation based on Yellen (2017). Private sector regular pay growth is Bank staff’s estimate of underlying pay
growth between January 2020 and March 2022 and ONS private sector regular pay growth otherwise. Short-term
inflation expectations are based on the Barclays Basix Index and the YouGov/Citigroup one year ahead measure of
household inflation expectations and projected forward based on a Bayesian VAR estimation. Slack is based on the
MPC’s estimate of the vacancies to unemployment ratio. Productivity growth is based on long-run market sector
productivity growth per head. The unexplained component is the residual. Data are to 2023 Q2, projections are for 2023
Q3 to 2024 Q1.
…and forward-looking indicators suggest that wage growth will fall back.
A number of forward-looking indicators suggest that nominal wage growth is likely to
moderate in 2023 Q4 and in 2024. Contacts of the Bank’s Agents expect settlements to
fall to around 4% to 5% next year, and for there to be fewer additional payments provided
to compensate for a higher cost of living. Respondents to the DMP Survey expect wage
growth of 5.1% next year.
Measures of staff salaries for new hires within the KPMG/REC Report, which have in the
past been a strong predictor of aggregate private sector pay growth, returned to levels
close to their historical averages this year and continued to fall in September (Chart 2.15).
This might indicate that aggregate pay growth is likely to return to levels consistent with
the inflation target next year. However, the predictive power of these data has been less
strong over recent months. Labour hoarding following a period of acute recruitment
difficulties could explain the strength of pay growth for current employees relative to new
hires. Changes in how frequently people move jobs might also affect the relationship
between the salaries of new hires in the REC survey and the official wage data, although
staff analysis suggests that the impact of this on the current outlook is small.
Chart 2.15: Forward-looking indicators suggest pay growth could slow markedly in
2024
Measures of annual wage growth (a)
Sources: DMP Survey, KPMG/REC/S&P Global UK Report on Jobs, ONS and Bank calculations.
(a) Definitions of wage growth vary between each of the measures. Private sector regular pay growth is Bank staff’s
estimate of underlying pay growth between January 2020 and November 2022 and ONS private sector regular pay
growth otherwise. REC shows average starting salaries for permanent staff compared to the previous month. The REC
index is mean-variance adjusted to ONS private sector regular pay growth over March 2001–19 and is advanced by 12
months, which coincides with the greatest correlation with private sector regular pay growth. The Agents’ contacts
expected range is based on early indications on pay settlements in 2024. Latest data points are September 2023 for the
REC index, and the three months to August 2023 for private sector regular pay. Pay growth projections are for 2023 Q4
and 2024 Q1.
Overall, annual private sector regular pay growth is projected to fall to around
7¼% in Q4 before declining quite markedly in 2024, but the outlook remains highly
uncertain.
Accumulating evidence of loosening labour market conditions and the signals from
leading indicators of pay growth underpin the central projection for wage growth, which
falls slightly to 7¼% in Q4, before declining more substantially to around 5% by the end of
2024, predicated on the expected path for inflation. The recent pattern of upside surprises
in the official wage data may point to some upside risk to this projection, whereas the REC
survey continues to suggest risks to the downside.
Consumer price inflation is falling, but remains well above the 2% inflation target.
Twelve-month consumer price inflation fell to 6.8% in July before edging down further to
6.7% in August and remaining at 6.7% in September (Chart 2.16). This was 0.3
percentage points below the August Report forecast. Declines in inflation up to July had
been driven largely by lower energy prices. But in August, core CPI inflation, which
excludes energy, food, beverages and tobacco, fell to 6.2% and further to 6.1% in
September, having been relatively stable at just under 7% in preceding months. The
decline in core inflation was driven by core goods inflation, which stood at 4.7% in
September, 1 percentage point below the August forecast.
Chart 2.16: Consumer price inflation has fallen since last year’s peak and is
projected to fall further
Contributions to CPI inflation (a)
Sources: Bloomberg Finance L.P., Department for Energy Security and Net Zero, ONS and Bank calculations.
(a) Figures in parentheses are CPI basket weights in 2023. Data to September 2023. Bank staff projections from
October 2023 to March 2024. Fuels and lubricants estimates use Department for Energy Security and Net Zero petrol
price data for October 2023 and then are based on the sterling oil futures curve.
Inflation is expected to fall markedly in October to 4.8%, largely reflecting a

reduction in the Ofgem price cap.
Inflation is expected to fall to 4.8% in October and remain around that level for the rest of
the year. The main driver of the expected fall in Q4 is a reduction in the Ofgem energy
price cap, reflecting the decline in wholesale gas prices over the course of 2023. The
typical household energy bill is going down to £1,834 annually at that point. Because the
typical bill rose to £2,500 over the same period a year ago, the lower level of the cap this
year will have a material impact on the annual inflation rate in 2023 Q4. Based on
wholesale gas prices up to 24 October 2023, the energy price cap is projected to rise
again by around £130 in 2024 Q1. This would remain well below the typical bill in the
same quarter this year, so energy prices would continue to contribute negatively to the
annual inflation rate.
Sterling oil prices have risen by 10% since the August Report (Section 2.1). Higher
sterling oil prices feed through to petrol prices relatively quickly. Fuel prices are still
expected to contribute negatively to CPI inflation in 2023 Q4, but that contribution is
smaller than in the August forecast.
Food price inflation, which has a large impact on the living costs of lower-income families
because it makes up a larger share of these families’ budgets, remains high. The annual
rate peaked at 19.1% in March and has since fallen back a little faster than expected in
the August Report, to 12.1% in September. Input prices continue to ease, but will take
time to transmit through the supply chain. Food price inflation is expected to fall to around
9% in 2023 Q4 and to around 5% in 2024 Q1, which remains broadly in line with the
intelligence gathered from contacts in the food sector reported in Box D of the August
Report.
CPI inflation is expected to fall further to 4.4% in 2024 Q1. That mainly reflects
lower goods price inflation, as firms are expected to pass on lower producer price
inflation…
Goods price inflation has moderated more quickly than expected in the August Report.
Some of the recent fall in goods price inflation has reflected developments in used car
prices, which tend to be driven by idiosyncratic factors. But there was also broader
downside news across a number of goods categories, with core goods inflation falling to
4.7% in September. Core goods price inflation is projected to fall further to 2.4% by March
2024, contributing to the expected reduction in headline inflation (Chart 2.16).
Easing input cost pressures are expected to continue to reduce consumer goods price
inflation in the coming months. Changes in producer price inflation tend to lead changes in
consumer goods price inflation by a few months. Output producer price inflation, which
measures the change in the price of goods sold by UK manufacturers, has slowed
significantly since its peak in mid-2022 (Chart 2.17).
Chart 2.17: Producer price inflation suggests cost pressures for goods are easing
Annual output producer price and CPI goods excluding energy inflation (a)
(a) The output PPI series is the headline ONS measure for manufacturing output producer prices. The PPI series has
been mean and variance adjusted to match the corresponding CPI series between 2012 and 2019. The latest data point
is September 2023 and the projection is to March 2024.
…and to a lesser extent services inflation, which, after a projected spike in

January, is expected to moderate as pay growth and other input costs fall.
Alongside labour market tightness and wage growth, services CPI inflation is one of the
MPC’s key indicators of domestic inflationary pressure. Services inflation stood at 6.9% in
September, 0.1 percentage points below the August forecast. There was some volatility in
services inflation over the summer due to travel-related components such as airfares and
accommodation. Excluding these components, services inflation has been more stable
since April. An underlying measure of services inflation produced by Bank staff, which is
determined by the comovement of price changes across services components to strip out
idiosyncratic fluctuations, has begun to fall back slightly in recent months but remains high
(Chart 2.18).
Services inflation is expected to remain broadly stable throughout 2023 Q4, before
increasing temporarily in January 2024. Large and unusual falls in a number of services
prices at the beginning of 2023 are unlikely to be repeated, resulting in a positive base
effect.
Starting in February 2024, services inflation is expected to fall back gradually. Labour
costs make up the bulk of services firms’ production costs, so price pressures for services
are likely to decline as wage growth is expected to moderate. Non-labour input costs have
also played a role in pushing up services inflation over the past two years. In recent
months, the S&P Global/CIPS UK services input and output price PMIs have continued to
fall, signalling that the non-labour elements of services firms’ costs are already
moderating. Consistent with these data, the Bank’s Agents’ contacts report that, although
pay pressures are still significant for consumer-facing services companies, other cost
pressures are mostly easing.
Overall, services CPI inflation is projected to fall back to 6.4% by March 2024 (Chart
2.18), consistent with the expected decline in pay pressures and broader input price
inflation.
Chart 2.18: A measure of underlying services inflation has started to fall back
slightly
Twelve-month services inflation (a)
(a) The methodology for an aggregate underlying inflation measure is set out in Potjagailo et al (2022). The underlying
services inflation measure shown here focuses on comovement in the prices of services items rather than all items. The
inflation rate of each item is disentangled into a common component and idiosyncratic fluctuations using a dynamic
factor model. In a second step, the common components of individual services price items are aggregated into the
underlying services inflation measure using the CPI item weights. The latest data are for September 2023, the projection
is to March 2024.
In aggregate, firms’ margins appear to have been squeezed in the past couple of
years. There is some evidence to suggest that firms plan to rebuild margins.
Both domestic workers and firms have suffered real income losses following the
deterioration in the UK’s terms of trade, which has been driven largely by the increase in
imported energy costs (Martin and Reynolds (2023)). Chart 3.2 shows the squeeze on
real labour incomes. Meanwhile, the Bank’s DMP Survey suggests that firms’ margins
have been more likely to fall than rise over the past year. These results are in line with
recent work by Piton et al (2023): UK firms’ earnings in excess of all production costs
have been declining since the start of 2022, as they did following sharp rises in energy
prices in the past. However, the decline in profits has not been uniform across firms. While
many firms have experienced declining profits, some firms with greater market power
have been able to increase their margins.
Against the backdrop of past reductions in aggregate margins, there is some evidence to
suggest that firms may attempt to rebuild margins as external cost pressures moderate. In
the DMP Survey, more firms expect their profit margins to increase than to decrease in the
coming year. But the Bank’s Agents report that firms currently see limited scope for margin
rebuilding through further price increases (Box D). The extent to which firms are able to
improve their margins is likely to depend on the outlook for demand (Section 3).
If firms and employees seek to recoup lost incomes by pushing for higher prices and
wages, the second-round effects from the increase in global energy and goods prices may
take longer to unwind. These risks continue to underpin the upside risks to the MPC’s
inflation projection (Key judgement 3 in Section 1).
2.4: Inflation expectations

Household inflation expectations have continued to ease.
In the latest YouGov/Citigroup survey, short-term household inflation expectations
remained broadly unchanged at still elevated levels, after falling back significantly from
their peaks in 2022 (Chart 2.19). Medium-term inflation expectations in this survey stand
close to their 2010–19 average. The distribution of inflation expectations within surveys
may contain information. The share of respondents expecting annual inflation of 6% or
more on average over the medium term remained broadly stable at around 16% between
August and October, well below the peak of 31% in August 2022 and close to the average
level over 2019.
Chart 2.19: Household inflation expectations have fallen back from their 2022 peak
Household inflation expectations (a)
Sources: Citigroup, YouGov and Bank calculations.
(a) Data are not seasonally adjusted. ‘Short-term expectations’ refers to expectations in the next 12 months and
‘medium-term expectations’ refers to expectations five to ten years ahead. The household survey asks about expected
changes in prices but does not reference a specific price index. The latest data points are for October 2023.
Firms are also expecting lower inflation over the coming year, though still higher
than the 2% inflation target.
In the DMP Survey, firms’ CPI expectations for the year ahead have been declining and
stood at 4.6% in October, still well above the inflation target (Chart 2.20). Firms’ three year
ahead CPI expectations also continued to edge down to 3.1% in October, compared to a
peak of 4.8% in September 2022.
Chart 2.20: Firms’ CPI inflation expectations have fallen back

Firm inflation expectations (a)
Source: DMP Survey.
(a) Data are based on responses to the question: ‘What do you think the annual CPI inflation rate will be in the UK, one
year from now and three years from now?’. The latest data points are for October 2023.
Market-based measures of inflation compensation have increased further since

August.
A measure of medium-term inflation compensation in financial markets has risen over the
course of the year and stands well above its average level over the previous decade,
though still below its peak in the first half of 2022 (Chart 2.21). Interpreting these data is
challenging because they can move for reasons unrelated to inflation expectations, for
example due to illiquidity in markets and the use of these instruments in hedging pension
liabilities. As this is a measure of RPI inflation compensation, any changes in the outlook
for the wedge between RPI and CPI can also affect these data.
The median respondent in the November Market Participants Survey expected CPI
inflation of 2.1% three years ahead, down slightly from 2.2% in August. The distribution of
survey responses remained skewed to the upside.
Chart 2.21: A measure of medium-term inflation expectations in financial markets

has been drifting up since the start of the year
RPI-reform adjusted measure of five-year, five-year forward inflation compensation (a)
(a) Market-derived inflation compensation rates for average UK RPI inflation over a five-year period starting five years
into the future. It is derived by adjusting the five-year, five-year rate to account for UK RPI reform. From 2030, UK RPI
will be aligned with the CPIH measure of consumer prices. At present, the wedge between the current definition of RPI
and CPIH affects the unadjusted series. This measure is calculated by adding a scaled market-derived estimate of the
impact of RPI reform onto the unadjusted rate. That is calculated as the difference between the closest one-year forward
rates before and after the planned RPI reform date (currently the five-year, one-year rate and the seven-year, one-year
rate) on a three-month daily rolling average basis, and the adjustment is applied to the five-year forward period
impacted by the reform. The latest data point is 24 October 2023.
Box B: Uncertainties around official estimates of labour

market activity
There are increased uncertainties around the headline labour market data that are
based on the ONS’s Labour Force Survey (LFS). A decline in response rates has
resulted in the ONS temporarily pausing publication of the LFS estimates of
employment, unemployment and inactivity following the June data, and replacing
them with experimental estimates. In addition, the reweighting of the LFS to reflect
up to date population estimates has been delayed. When this is introduced it is
expected to result in revisions to the LFS back data. The MPC has for some time
taken into account a wide range of data to inform its judgements on the labour
market, including other official data, business surveys and intelligence from the
Bank’s Agents. The uncertainties surrounding the LFS data underline the
importance of this approach at the moment.
There has been a material fall in the response rate to the LFS.
Response rates to the LFS have been declining (ONS (2023)). Although the
downward trend pre-dated the pandemic, a sharp fall in response rates was
observed in 2020 when social distancing measures led to the survey being
conducted via phone interviews instead of face-to-face (Chart A). The ONS
increased the number of households it asked to complete the survey from mid-2020
in an effort to limit the impact of non-response on the achieved sample size of the
survey, although this was phased out by July 2023.
Chart A: LFS response rates and achieved sample sizes have declined
notably since the pandemic
LFS response rate and achieved sample size (a)
(a) Dashed lines represent the 2013–19 trend in sample size and response rate if projected forward linearly.
Data are to 2023 Q2, prior to the phasing out of the boost to the LFS sample size introduced by the ONS during
the pandemic.
Response rates have deteriorated further since mid-2020. The continued

deterioration might be an extension of the pre-Covid downward trend, which could
reflect a shift in societal attitudes towards responding to household surveys. Similar
downward trends in household survey response rates have been observed across
many other advanced economies (see, for example, Leeuw et al (2018)).
The decline in response rates increases the risk that the LFS estimates may be
statistically biased. If the fall in responses is concentrated in households that have
different labour market characteristics than the average respondent, the survey will
be less representative as a result. In addition, the decline in response rates has
contributed to a reduction in the achieved sample size of the LFS. This means the
survey is experiencing higher sampling variability than in the past, which can result
in more volatile estimates from quarter to quarter.
In an effort to address some of these challenges the ONS is developing a

transformed Labour Force Survey (TLFS). The new estimates will be based on
improved methods for collecting data, aimed at increasing the response rate, and a
larger sample size. The ONS plans to transition to the TLFS estimates in March
2024.[1]
The ONS has temporarily paused the publication of LFS estimates from the
June data, and replaced them with experimental estimates.
Due to concerns around the impact of the fall in the response rates on the quality of
the data, the ONS has temporarily stopped publishing LFS estimates of
employment, unemployment and inactivity following the June 2023 data. The ONS
has announced that it plans to resume publication of its LFS estimates in
December, but in the meantime it has replaced them with experimental estimates.
These figures take the LFS estimates for unemployment and employment in the
three months to June, and thereafter project them forward in line with the claimant
count measure of unemployment and HMRC payrolls data respectively. As
experimental statistics, these estimates need to be interpreted with caution
(especially given both the HMRC payrolls data and the claimant count measure are
themselves experimental statistics). The Office for Statistics Regulation is
undertaking a review of these data.
LFS estimates are also based on mid-2021 population estimates, and will be
revised to reflect more up to date estimates later this year.
The population weights that the ONS uses to produce the latest LFS estimates
assume that the demographics of the population have not changed since June
2021. Updating for recent demographic changes will affect estimates of the rates of
participation, employment and unemployment in the labour market. For example,
the current LFS population weights do not account for the ageing in the population
since mid-2021, and as a result older people have been progressively
underweighted in the LFS estimates. As older people are more likely to be out of
the labour force, this means that the estimates of the participation rate and
employment rate are probably too high.
The existing population weights used in the LFS are also based on a mid-2021
assumption about the size and growth of the population. They do not therefore
capture more recent information about the population, such as greater than
assumed inward migration. Because the UK population is now estimated to have
increased since mid-2021 by more than assumed in the LFS, the total number of
people estimated to be in employment, unemployment and outside of the workforce
in the UK is expected to be revised up, all else equal.
The ONS plans to incorporate updated population estimates in December, and this
is expected to result in revisions to the LFS back data.
Bank staff estimates using more up to date population weights point to

notable downward revisions to the employment and participation rates in
mid-2022, but a smaller effect on the unemployment rate.
Bank staff estimates of the impact of using more up to date population weights are
shown in Chart B. Those estimates suggest that the population reweighting would
reduce the employment and participation rates in mid-2022 by around 0.4
percentage points. These estimates use the latest publicly available population
estimates from January 2023, but the ONS plans to publish a further update later
this month.
Chart B: Forthcoming revisions from updating population weights are

expected to reduce estimates of the participation and employment rates in
mid-2022
Indicative staff estimates of the impact of updating the LFS population weights (a)
(a) Indicative staff estimates are based on the ONS’s January 2023 population projections. Bars represent the
change between 2019 Q4 and the three months to July 2022 in the current LFS estimates versus the indicative
post-revision estimates calculated by Bank staff.
The indicative staff estimates point to a limited impact on the unemployment rate in
mid-2022 from the population reweighting. As vacancies are measured through a
different survey, this also implies little impact on the vacancies to unemployment
ratio – one of the MPC’s key measures of labour market tightness.
These indicative estimates only give a snapshot of the possible impact of the
reweighting in mid-2022 on the participation, employment and unemployment rates.
In addition to the uncertainty over these impacts, it is possible that any future
revised estimates will also reveal a change to the recent path of these labour
market variables.
These increased uncertainties in the official LFS data reaffirm the

importance of taking a steer from a wide range of data on labour market
developments.
While there are increased uncertainties about the LFS data, the Committee’s views
on labour market developments are informed by a wide range of data. The MPC
looks at other official data, such as the ONS Workforce Jobs and HMRC payrolls
data, and wider labour market indicators, such as private sector surveys and
intelligence from the Bank’s Agents. In addition to the vacancies to unemployment
ratio, surveys of recruitment difficulties inform the MPC’s assessment of labour
market tightness. The collective steer from these data sources is discussed in
Sections 2.2 and 2.3.
Box C: How has Blue Book 2023 changed past estimates of

UK GDP growth?
The ONS raised its estimates of GDP growth over 2020 and 2021 in its
annual Blue Book revisions.
Each year the ONS updates its estimates of GDP growth in past years to reflect
improvements in its methodologies and additional data. The Blue Book 2023
revisions included large changes to estimates of GDP growth over 2020 and 2021,
a time when measuring the size of the economy was particularly challenging (ONS
(2023)). Annual GDP growth is now estimated to have been 0.7 percentage points
higher in 2020 and 1.1 percentage points higher in 2021. Growth rates since then
are little changed.
The latest estimates imply that UK output returned to its pre-Covid level by
the end of 2021.
Following the revisions, UK GDP is now estimated to have exceeded its pre-
pandemic level by 2021 Q4, rather than having remained slightly below it (Chart A).
In 2023 Q2, GDP is estimated to have been 1.8% above its pre-Covid level. On
current estimates, the UK’s post-Covid recovery in output is now more in line with
other G7 countries.
Chart A: The level of UK GDP was revised higher in Blue Book 2023
Change in level of GDP since 2019 Q4 (a)
(a) Data are to 2023 Q2.

Upward revisions to public sector output were sizable; estimates of total

market sector output were little changed.
The revisions to GDP were concentrated in the public sector and, specifically, the
healthcare industry where output had been particularly hard to measure during the
pandemic. They reflected new data sources and measurement improvements.
Revisions to overall market sector output were small. Within the market sector,
upward revisions to the wholesale and retail trade industry were largely offset by
downward revisions to industrial production.
These revisions do not have implications for the MPC’s assessment of the
balance between demand and supply over the past and hence underlying
inflationary pressures.
Revisions to historic estimates of GDP are not typically judged to have implications
for the balance between demand and supply and hence inflationary pressures,
since inflation outturns remain the same. In addition, these particular Blue Book
revisions are almost entirely accounted for by changes to public sector output and
so contain little news about the balance of supply and demand in the market sector
economy, which is more relevant for assessing inflationary pressures. In light of
that, the MPC has judged it appropriate to revise up potential supply in line with the
revisions to measured GDP, such that the balance between them over the past is
unchanged.
Box D: Agents’ update on business conditions

The key information from Agents’ contacts considered by the Monetary Policy
Committee at its November meeting is presented in this box, which summarises
intelligence gathered in the six weeks to mid-October.
In line with the September Agents’ update, many areas of the economy continued to
report weak activity. In some areas such as housing, commercial real estate,
consumer goods, business services and manufacturing, contacts suggested there
had been a further softening in activity.
Employment intentions have weakened a little further, but overall remained

consistent with broadly stable headcount in the coming year. Recruitment difficulties
have continued to ease, although skill shortages were still a concern for some.
Goods inflation is slowing more quickly than for services as input cost pressures
continue to ease.
While still positive, nominal growth in consumer spending is weakening, in

line with lower inflation. Growth in consumer spending volumes remained
subdued. Spending on services appeared to be outperforming goods.
For consumer goods, volumes have mostly been flat, including for clothing and
beauty items. But they have fallen sharply over the past year for furniture,
technology, and home improvement products, likely a consequence of increased
spending on these during the pandemic.
Price inflation has sustained revenue growth at pubs and restaurants as the number
of customers has fallen. Following a generally good summer, contacts in the
hospitality sector were worried about demand falling more over the coming months
than is usual for the time of year. Bookings for hotels and other tourist venues were
being made later than usual reflecting greater consumer caution.
Contacts reported that households have also been cutting back the size of their
entertainment and data packages and spending less on telecoms, such as ending
landline contracts and upgrading mobile phones less frequently.
Overall, contacts remained pessimistic about the outlook, with most expecting weak
volume growth over the coming year.
Investment growth is expected to slow slightly but remain positive next

year, driven by the need to maintain and upgrade information and other
technology, the pursuit of efficiencies and investment to improve
sustainability.
Higher finance costs and greater economic uncertainty have led some contacts –
especially those already facing margin or cash-flow pressure, or those dependent
on borrowing to invest – to lower their investment intentions. Those with strong cash
positions plan to continue to invest: business services firms continue to spend on
information and other technology; professional service firms are most likely to refer
to meaningful investment in AI technologies aimed at creating efficiencies rather
than reducing headcount; consumer services are investing to maintain their service
offering; while many production firms are focusing on green energy generation and
other efficiency measures.
These considerations continue to shape investment intentions. Chart A summarises

responses to a recent Agents’ special survey on this topic. The main factors
supporting investment intentions are digitalisation, efficiency, and sustainability,
while the cost of external finance is the largest reported drag.
Chart A: Structural factors are motivating higher investment spending next

year
Factors affecting investment over the next 12 months (a)
Source: Bank calculations.
(a) Taken from responses to the Agents’ survey on investment intentions. Question: ‘How are the following
factors affecting your UK investment spending plans over the next 12 months compared to the past 12
months?’. Reports of ‘slight’ reduction/boost were given a 50% weight relative to reports of ‘substantial’
reduction/boost when calculating these net balances.
Goods export volume and services export value growth have slowed over
the past year. Contacts cited the ongoing impact of Brexit-related trade
frictions.
Manufactured goods exports volumes growth has slowed, with exports now at the
same level as a year ago. Consumer goods exports volumes fell, with EU sales
notably weaker. This reflected softer demand but also Brexit-related trade frictions.
While demand from the US and Middle East remained robust, it has softened from
China. Services exports values growth has slowed but remained positive, mostly
driven by fee increases. There are near-term downside risks from weaker consumer
demand and the continued impact of Brexit-related trade frictions, although contacts
expected demand for aerospace, defence, and pharmaceuticals to remain robust.
Revenue growth in business services, while slightly weaker, continues to be

sustained by inflation as volumes fell slightly on a year ago. Manufacturing
volumes have reduced a little, and construction output continues to decline.
Revenue growth in many areas of business services has continued to be subdued.

Mergers and acquisitions activity has remained weak, demand for logistics has
softened with container imports down compared with last year and property service
revenues have fallen, in line with declining commercial real estate transactions.
Even accountancy, law and consultancy services, where demand had been holding
up, were now reporting a softening as clients become more circumspect on
discretionary spending. Contacts were concerned that turnover growth could soften
further over the winter, although some expected demand to pick up in 2024 H1 as
funding costs stabilised.
Manufacturing volumes fell slightly. This is weaker than in the Agents’ September
update on business conditions, when contacts reported that volumes were flat.
Domestic demand has eased, with demand falling for homewares and construction
products, although some sectors such as aerospace, renewables and defence,
chemicals, pharmaceuticals, and energy were still seeing growing demand
supported by exports. Consumer-facing manufacturers cited weakening in order
books as a sign that volumes would decline over the year ahead.
Weakening demand, high costs and lower returns have led to a continued decline in
construction output. Private sector activity has slowed sharply, while public sector
activity has moderated. The pace of decline in construction output could increase
over the winter, given uncertainty about private sector project rates of return and
increasing pressure on public sector budgets.
The declining trends in housing demand and housing starts have

intensified. Rental demand has remained strong.
Contacts reported that higher mortgage rates and expectations of further house
price falls were increasingly weighing on housing demand, with reductions of
around 20% in transactions and 5% in prices having occurred relative to a year ago.
Most expected broadly similar falls in prices over the year ahead. Mortgage
approval numbers have declined further and were expected to continue to do so
over the coming year. There was no pickup in mortgage arrears, but the credit
profile of applicants has worsened owing to weaker disposable income.
Rental demand has remained strong, well in excess of supply, pushing new rents
up by double digits on a year ago. One contributing factor was the higher cost of
mortgage borrowing, which was making rents relatively less expensive, further
stimulating rental demand.
Investors’ demand for commercial real estate has softened given their perception of
an increased likelihood of ‘higher-for-longer’ interest rates. There were isolated
reports of forced sales due to increased outflows from portfolio funds held by
institutional investors. Banks have started responding more firmly to breaches in
loan covenants, leading to an expectation of more forced sales next year.
Credit supply has tightened for small firms, less so for large corporates.
Demand for credit remains weak given high interest rates.
Larger corporates typically reported continued access to bank or non-bank finance
through 2023. Contacts say banks have tightened lending supply for small
businesses, with some reports of banks rejecting new loans, not rolling over debt,
or imposing more onerous terms and conditions.
Demand for credit has remained weak across firms of all sizes due to higher
interest rates and uncertainty about the economic outlook. This was consistent with
declining bank loan books. Large corporates were issuing fewer bonds in the hope
that yields would decline, and private equity firms were much less active.
Bad debts were still at normal levels, although the failure rate of the smallest
companies was higher than recent years. Companies in the construction sector
were faring the worst, with trade credit tightening and even some large companies
getting into difficulty.
Employment intentions have softened a little further since mid-August but

overall remained consistent with broadly stable headcount in the coming
year. Recruitment difficulties have continued to ease, although skill
shortages were still a concern for some.
Many contacts were looking to maintain employment at current levels, if they judged
they were the right size to meet demand or if they were prepared to hoard labour
after experience of recruiting difficulties in the past. There was a slight uptick in
reports of planned headcount reductions in property and construction, although
such reports remain in the minority. Some sectors such as audit, insurance,
pharmaceuticals, and aerospace have continued to expand their workforces on the
back of growth.
Recruitment difficulties have continued to ease for many contacts, particularly for
lower-skilled roles. But recruitment remained a serious concern for contacts in
particular locations and for contacts demanding skills in the finance, accountancy,
IT, and engineering sectors.
Wage settlements were expected to trend down slightly over the rest of this year.
Early indications for 2024 suggested that average pay increases were expected to
be lower than in 2023. But those businesses that rely heavily on lower-paid workers
were concerned about another sizable increase in the National Living Wage next
April.
Goods inflation is slowing more quickly than for services inflation as input
cost pressures continue to ease.
Contacts reported price falls for a range of key inputs, despite increases in the oil
price and the recent depreciation of the pound. Manufacturers’ domestic price
inflation has continued to ease, with an increasing number of contacts expecting to
return to a single small annual price increase in 2024 and some hoping to avoid
price increases all together.
Business services price inflation has remained high, but contacts judged that it had
peaked amid more caution about price rises, even in sectors such as law,
accountancy, and IT where demand had been strong.
Aggregate profit margins have remained squeezed as many companies were

unable to fully pass through higher costs into output prices while sales volumes
were weakening. Firms saw limited scope for margin rebuilding through further
price increases, with many instead focused on operational efficiency improvements.
Consumer goods price inflation has continued to ease for a broad range of
categories. Food producers reported ingredient costs either stabilising or falling.
Price inflation for new cars has passed its peak and was expected to moderate
further. Contacts expected little change in prices for electronics, white goods, and
furniture. Clothing retailers reported low single-digit inflation for their autumn and
winter ranges.
Inflationary pressures for consumer services were weakening more slowly than for
goods. But restaurants, pubs and hotels saw somewhat limited scope for further
price increases without adverse consequences for sales volumes. Health services
inflation appeared likely to remain high, with continuing cost pressures and robust
demand.
3: In focus – The outlook for demand
In the face of the series of significant shocks that have hit the UK economy in
recent years, demand growth has proved relatively resilient (Section 3.1). Several
factors have been important in supporting that resilience, including a strong labour
market, falling energy prices and fiscal support from the Government, all of which
have boosted household real income (Section 3.2). There are increasing signs that
the restrictive stance of monetary policy needed to combat the elevated inflation
caused by the original economic shocks is now reducing demand through a range
of channels (Section 3.3). The evolution of those factors which have been
supporting the economy will be the key influence on how demand, and hence
inflation, develops. In the MPC’s central projection, demand growth remains below
historical averages as higher interest rates weigh on activity, a margin of slack
opens up, and inflation is brought back to target (Section 3.4 and Section 1).
3.1: Recent developments in GDP

GDP growth has been stronger than previously anticipated during the first half of
2023 but recent data suggest GDP growth has started to slow.
Between the end of 2022 and August 2023, the UK economy grew by 0.6%. That
represents slow growth compared to historical norms. However, in the context of the
sequence of supply shocks that have hit the UK economy ((Bailey (2023)), including the
energy price spike following Russia’s invasion of Ukraine, the economy has shown more
resilience than many expected. Chart 3.1 shows the evolution of forecasts for 2023
calendar year growth, with the Bank’s forecasts in aqua and the average forecast from the
HM Treasury survey of independent forecasters in orange. In 2022 and early 2023, the
consensus was that the economy would be in recession in 2023. Expectations are now
that the economy will grow slightly across 2023. Much of this improvement reflects a
recovery from the supply shocks, and in particular the fall in energy prices. However, over
this time, the MPC has also adjusted the conditioning assumptions upon which its
forecasts are constructed and made a series of judgements to increase its projections of
demand. These judgements include the possibility of lower precautionary saving by
households than previously assumed, in turn related to a lower risk of job loss given the
continued strength in labour market activity (Section 1).
However, recent data releases suggest that the gradual improvement in the near-term
outlook for GDP has stalled (Section 2.2). In assessing the likely evolution of the
economy, a key question for the MPC is the extent to which supportive factors will remain
in the coming quarters. Another key question is the extent to which higher interest rates
will slow demand growth. Given the significant increase in Bank Rate since the start of
this tightening cycle, the current monetary policy stance is restrictive.
Chart 3.1: Forecasters have consistently revised up expectations for 2023 GDP
growth over the past year
Evolution of forecasts for 2023 calendar year GDP growth (a)
Sources: HM Treasury and Bank calculations.
(a) The independent forecasters series shows the mean of HMT’s survey of independent forecasters. This includes the
most recent forecast for each institution included in the survey and therefore can include forecasts made in earlier
months than each survey period. Differences between independent forecasters and the Bank’s projections will in part
relate to different conditioning assumptions for their forecasts. The evolution of the Bank’s MPR forecasts reflects a
sequence of judgements made by the MPC about the likely outlook for demand (see Key judgement 1 in Section 1). The
final data points refer to the October 2023 average forecast from HMT’s survey of independent forecasters and
projections from this Report respectively.
3.2: Key factors supporting the resilience in demand

A resilient labour market has helped support aggregate nominal household
incomes...
The labour market has remained relatively resilient during the course of the energy price
shock. Although the unemployment rate has risen over recent months (Section 2.2), it
remains low in a historical context.
A stronger labour market supports household demand directly, through higher household
labour incomes, and indirectly as a result of greater consumer confidence, partly from
lower worries about job security. As shown in Chart 3.2, employment growth has
contributed positively to annual real labour income growth throughout 2022 and 2023, with
a peak contribution in 2023 of 1.2 percentage points in April. The tightness of the labour
market is also estimated to have pushed up nominal wage growth (Chart 2.14). Although
these factors have been outweighed in 2023 by the fall in energy prices and the
commensurate easing in inflation, they remain an important determinant of labour
incomes.
There is a range of potential explanations for this resilience in the labour market. One is
‘labour hoarding’: the Bank’s Agents report that, in response to past heightened
recruitment difficulties, some businesses have kept employment levels higher than they
would have done otherwise.
…but unemployment has started to pick up.

There are some early signs that the resilience in the labour market has started to wane,
suggesting the support for income growth might also lessen at some point. Some
indicators of employment growth have weakened over time and the unemployment rate
has risen to 4.2%, based on the ONS’ experimental estimate of unemployment (Section
2.2). Since the peak in the vacancies to unemployment ratio in 2022, much of the
reduction in labour demand has been reflected in falling vacancies. But the recent rise in
unemployment may indicate that more of the adjustment in the future will be through job
losses, or weaker employment growth, which would reduce aggregate household income.
In contrast, nominal wage growth is projected to remain high and above inflation in the
near term, supporting real labour income growth.
Chart 3.2: A resilient labour market and a fall in energy prices have supported an
improvement in household real income growth
Annual real labour income growth (a)
(a) Contributions to real labour income growth are approximations calculated as the growth rate of the individual series
and so do not exactly sum to the total. Prices are measured using the three-month average seasonally adjusted CPI
index. Wages are defined as seasonally adjusted whole economy total average weekly earnings. The recent
contributions from employment growth may be affected by additional uncertainties around interpreting official estimates
of labour market activity (see Box B for more detail). The final data points refer to July 2023.
Real incomes have been supported by the fall in energy prices.

There has been a marked fall in wholesale gas prices since 2022 (Chart 2.4), now feeding
through into retail gas and electricity bills. A falling contribution from energy prices has
been the primary driver of the decline in CPI inflation this year (Section 2.3), and the drag
on real incomes from rising prices (purple bars in Chart 3.2) has waned. The improvement
in measures of consumer confidence, which have shown a marked rebound from near-
historic lows in 2022, aligns closely with the fall in wholesale gas prices, probably
reflecting households expecting lower energy bills in the future. In the most recent data,
the headline GfK consumer confidence measure fell back somewhat but remains well
above its low point in 2022.
Incomes have also been supported by the Government’s measures to help

households weather the pandemic and energy price shock. These are now being
withdrawn…
The Government provided significant fiscal support to households through the pandemic
and also in response to the energy price shock. Chart 3.3 shows two ways of quantifying
the level of fiscal support for the economy: the cyclically adjusted primary deficit and the
cumulative borrowing impact of government policies announced since Budget 2020. Both
these measures show record levels of fiscal policy support, particularly at the height of the
pandemic. Some of the more recent key policies have taken the form of transfers to
households, including the £400 Energy Bills Support Scheme and the Cost of Living
Payments for lower-income households. These will have directly supported household
demand.
Given the waning impacts of the pandemic and lower energy prices, fiscal support is
being progressively withdrawn. As shown in Chart 3.3, the level of support from fiscal
policy is expected to fall slightly in 2023–24 before falling more materially in subsequent
years.
Chart 3.3: Support from fiscal policy is expected to fall in the coming years
Measures of fiscal support (a)
Sources: OBR and Bank calculations.
(a) Forecast as of March 2023. The cyclically adjusted primary deficit measures government expenditure excluding
interest costs net of government revenue, adjusted for the economic cycle by the OBR. It is presented as a share of
GDP consistent with the latest available ONS GDP data to the OBR at the time of its publication (Quarterly National
Accounts published 30 June 2023). Cumulative policy measures since March 2020 is the total of the OBR estimate of
the impact of government policies announced at successive fiscal events on public sector net borrowing, measured in
nominal terms. The final data points refer to the 2027–28 financial year.
…although households in the NMG survey remain optimistic about their future
finances.
Despite the headwinds to income growth, households are relatively optimistic about their
future finances. In the Bank’s NMG survey, the measure of households’ expectations for
their own financial situation over the next year has improved substantially since 2022 and
is now in line with results prior to the pandemic. Survey responses also suggest that
households’ perceived risk of job loss has been falling and is now at its lowest level since
2015, although expectations for the level of economy-wide unemployment have increased
slightly over the past six months. The NMG’s measure of household income expectations
has also risen, although this largely reflects the expectation that nominal incomes will
grow given high inflation.
Household saving decisions will also affect the demand outlook; there is some
evidence to suggest that households have been saving less recently.
During the pandemic, household consumption fell by more than income as households
were less able to spend on services, which meant that in aggregate households built up
additional savings. Much of these additional savings took the form of bank deposits. As
shown on the left of Chart 3.4, the total stock of household deposits rose materially,
peaking around 10% higher than its previous trend in 2022 Q1. A similar pattern has been
observed across advanced economies (IMF (2023)).
Chart 3.4: In aggregate, households built up additional savings during the

pandemic
Household deposits growth since 2010 (a)
(a) The dashed orange line shows a simple trend growth path based on average growth between 2010 and 2019.
Household income is defined as nominal post-tax household and non-profit institutions serving households disposable
income. The final data point refers to 2023 Q2.
There is some evidence that households are now saving less out of their current income,
potentially partly reflecting some households having built up an additional savings buffer.
The stock of deposits, relative to trend, has fallen back a little since its peak. And as Chart
3.5 shows, two thirds of households who have reported changed saving habits in the
NMG survey reported saving less than usual over the past six months.
Chart 3.5: Fewer households are expecting to save less than usual in the next six
months than was the case over the past six months
Share of households reporting changes in their rate of saving (a)
Sources: NMG Consulting and Bank calculations.
(a) Results show responses to the survey question: ‘As a result of any changes in income or spending, would you say
that your household has saved more, less, or the same over the last six months compared with how much you usually
save?’. Respondents who indicated having a different saving pattern to normal were asked a follow-up question. If they
saved less than usual, they were asked if that would continue. And if they saved more than usual, they were asked if
that would continue. Respondents saving around their usual rate over the past six months are excluded from the chart.
The survey results were collected between 30 August and 19 September.
The ONS measure of the aggregate saving rate still remains higher than before the
pandemic, matched by a similar trend in the cash-based saving rate (Chart 3.6). The
difference between the NMG survey, which suggests households are saving less, and the
aggregate ONS data may reflect differences in behaviour across the savings and income
distribution. The distribution in household savings in the UK is highly skewed (see, for
example, Broome and Leslie (2022)). This means that behaviour at the top of the
distribution has a much larger impact on the aggregate saving rate.
Evidence from the NMG survey shows that, on average, the highest income households
have been much more likely to increase their savings levels compared to a year ago.
Within the highest income decile, the share of respondents who increased their savings
over the past year is 25 percentage points higher than those who have reduced their
savings. In contrast, for the bottom half of the income distribution, respondents on
average report having fewer savings than a year ago.
This distributional pattern is important because household behaviour is likely to vary

across the distribution, which can shape the aggregate demand outlook. For example,
households at the top of the savings distribution are likely to be less responsive to
changes in broader economic trends, such as the weakening in the labour market. And
higher wealth and income households also make up a disproportionate share of
consumption: in 2021–22, the tenth of households with the highest income made up
around a fifth of household expenditure.
Chart 3.6: The aggregate saving rate is expected to be broadly unchanged over the
next three years
Aggregate saving ratio (a)
(a) The cash-based savings ratio excludes transactions which are imputed and unobserved by households, for example
the imputed value gained by owner-occupiers from living in their home. The final outturn data is for 2023 Q2 and the
final forecast value is for 2026 Q4.
There are uncertainties around whether households can support consumption by running
down savings or saving less out of their current income in the future. The right panel in
Chart 3.4 shows that when savings are considered relative to income, the above-trend
savings built up during the pandemic have been fully eroded. If households aim to
maintain a stock of savings in line with incomes, they may not want to draw down savings
any further. In terms of saving out of current income, the aggregate saving rate is
projected to remain fairly flat over the MPC’s forecast period, as unemployment increases.
Indeed, Chart 3.5 shows that among households who have changed their saving habits
over the past six months, the share of households who are planning to save less than
usual falls from two thirds to a half or under.
Other ways in which households can maintain their spending include borrowing and
raising hours worked. And there is some evidence more households are using credit to
support consumption. Data from the ONS Opinions and Lifestyle Survey show that the
share of people using credit to cope with high inflation has risen from 11% in early 2022 to
16% in the most recent data. However, overall growth in lending in the economy has
slowed significantly; for households this has been driven by a slowdown in mortgage
lending (Section 2.1) outweighing continued growth in consumer credit. There is also
evidence from the latest NMG survey that some households will support consumption by
changing their working arrangements: of those households who are expecting to see their
real incomes fall but plan to cut consumption by less than the fall in their income, 17%
plan to fund that gap by working overtime and 8% plan to move to a better paying job.
Overall, real labour income is projected to grow modestly over the forecast
period, the aggregate saving rate is projected to remain broadly unchanged, and
consumption growth is projected to be weak.
Real post-tax household labour income is projected to grow modestly over the forecast
period. There is uncertainty around how household saving behaviour will evolve over the
coming years. Despite a still elevated stock of nominal household deposits, evidence from
both the NMG survey and the likely gradual rise in the unemployment rate point towards
households avoiding running down savings where possible. Therefore, the household
saving ratio is expected to remain broadly unchanged over the MPC’s forecast period
(Chart 3.6). The relatively slow growth in income means that consumption growth is
expected to be weak throughout the forecast period: calendar-year household spending is
expected to be flat in 2024, and to rise by ½% in 2025 and by just over 1% in 2026
(Section 1).
3.3: The impact of higher interest rates on demand

Higher interest rates are expected to reduce demand to an increasing extent.
In order to bring inflation back to target, the MPC has raised Bank Rate significantly since
the start of this tightening cycle and now judges that the current monetary policy stance is
restrictive (Section 1). There are increasing signs of the impact of tighter monetary policy
in the labour market and in momentum in the real economy more generally.
The largest component of lower demand from higher interest rates is estimated to come
from household consumption, in part because consumption makes up around 60% of total
GDP. The effects of higher rates on housing investment, business investment and the
exchange rate are all also important for the overall impact on demand. The following
sections present evidence of the impact that rate rises are having on the economy
through each of these channels so far.
Overall, the impact of higher interest rates on GDP is expected to materialise with a
significant lag: in the November projections, it takes until 2025 for the GDP impact to be
close to fully felt. Based on the average relationships over the past between Bank Rate,
other financial instruments and economic activity, Bank staff estimate that more than half
of the impact on the level of GDP is still to come through, although there is significant
uncertainty around that estimate. The impact is likely to be felt more quickly on housing
investment and more slowly on consumption.
There are a wide range of factors, some of which change over time, that are likely to affect
the impact that interest rates have on the economy. For example, as set out in Mann
(2023), financial market conditions, the level of interest rates prior to initial rate rises, and
the evolution of real rates have the potential to affect the pass-through of rate rises to the
economy. The structure of the economy may itself also affect monetary policy
transmission, such as the value and distribution of assets and loans.
Consumption
Higher interest rates reduce household consumption through a range of channels.
Chart 3.7 presents an estimate of the impact of higher interest rates since August 2021 on
the level of household consumption, both so far and into the future. The total effect is split
into broad categories that show the relative size of some of the channels of monetary
policy transmission. The mortgage cash-flow channel captures the direct impact of
changes in household mortgage costs. The broader housing channel represents the
impact of changes in the value of housing. This includes, among other effects, changes in
the available collateral against which households can borrow and effects on households’
saving behaviour. Other channels are captured in the purple bars. This includes a range
of mechanisms such as the impact of interest rates on financial wealth, and ‘second-
round’ effects in which a reduction in demand then leads to households cutting
consumption as the wider economy weakens.
Chart 3.7: Increases in interest rates are expected to continue to reduce

consumption
Estimated impact of changes in OIS yield curve since August 2021 on the level of consumption
(a)
(a) OIS rates are the overnight index swap rates and represent market expectations for Bank Rate. Data up to 24
October 2023 are included. Estimates show the output from the standard treatment of the impact of changes in Bank
Rate and Bank Rate expectations in the Bank’s forecasting models. The consumption effects of the estimated impact of
changes in the OIS curve on sterling exchange rates have been excluded. Both the overall total impact and the
individual channel estimates are uncertain and could be higher or lower than presented here. The ‘Mortgage cash flow’
bars include some effect from intertemporal substitution where higher interest rates shift incentives to consume later
than otherwise would be the case. The ‘Other’ bars show the net effect of changes in Bank Rate excluding the direct
mortgage cash-flow channel, intertemporal substitution and broader housing effects.
Higher interest rates reduce household consumption via higher mortgage costs,
even though aggregate household incomes have increased.
Changes in Bank Rate and future interest rate expectations pass-through to changes in
household deposit and loan rates over time. As set out in Section 2.1, pass-through to
rates on new loans has been broadly in line with developments in the relevant reference
rates. In contrast, pass-through to some savings rates has tended to be somewhat slower.
Nevertheless, the direct cash-flow effects of changes in interest rates have increased
average household incomes. This is accounted for by two key factors. First, the stock of
household savings exceeds the stock of mortgages: the outstanding value of mortgages is
a little over £1.5 trillion compared to close to £1.7 trillion in household deposits. That
means for an equivalent change in interest rates the impact on interest income is greater
than the impact on mortgage costs. And second, as set out in the May 2023 Report, over
four fifths of mortgages are on fixed rates. This means changes in interest rates do not
immediately affect payments on the majority of mortgages, but rather only when those
mortgages are refinanced.
Despite this, the reduction in consumption from rising mortgage costs is expected to
outweigh the boost to consumption from higher savings income. In general, changes in
income do not affect consumption one-for-one. Instead, they depend on households’
marginal propensity to consume. This measures the responsiveness of consumption to a
given change in income. Estimates of marginal propensities to consume vary significantly
over a number of different dimensions. Analysis suggests that a household’s marginal
propensity to consume will be lower, meaning consumption changes less in response to a
given income change, if the income change is positive, the household has a high income
and if the household is not liquidity constrained (see, for example, Christelis et al (2017)
and Albuquerque and Green (2022)). Households with positive net savings are more
likely to meet all of these conditions compared to households with large loans. This means
that households with large savings are likely to increase consumption relatively little in
response to rising savings incomes, but those with mortgages and other loans will reduce
consumption materially in response to higher loan costs. The net result is for demand to
fall despite the net aggregate increase in household income.
The NMG survey also suggests that the overall direct effects of interest rates on
household cash flows will reduce consumption. As Chart 3.8 shows, mortgagor
households are far more likely to report a negative effect on household finances from
interest rates than the equivalent share of saver households who report a positive impact
from higher interest rates.
The consumption effects from higher mortgage payments are expected to build over time
(aqua bars in Chart 3.7). This reflects the large number of people on fixed-rate mortgages
who have yet to experience an increase in mortgage costs (Box B in the May 2023
Report). However, the aggregate reduction in consumption is likely to materialise
somewhat faster than the realised increase in mortgage costs. This is because it is likely
that those with fixed-rate mortgages coming to an end will know that their mortgage costs
are going to increase and adjust consumption in advance. The Bank’s NMG survey shows
that just over 30% of mortgagors who are yet to reach the end of their fixed-rate loan have
already spent less as a result. And only around two fifths of these mortgagors expect to
take no action in the next year as a result of the future increase in mortgage costs.
Chart 3.8: More borrower households report a negative impact on their finances
from higher interest rates than saver households
Net balance of households reporting a positive versus negative impact of higher interest rates
on their finances (a)
Sources: NMG Consulting and Bank calculations.
(a) Results are based on responses to the following questions: ‘What impact has this rise in interest rates had on your
household finances in the last twelve months?’ and ‘What impact do you expect the rise in interest rates to have on your
household finances in the next twelve months?’. Mortgagor and renter households are restricted to those who do not
have positive net savings. The net savers group includes all housing tenures. The survey results were collected
between 30 August and 19 September.
Higher interest rates weigh on consumption via the housing market, for example
from collateral and precautionary saving effects…
Higher interest rates are typically associated with lower house prices, which can have
knock-on effects on consumption, largely via collateral effects.
Nominal house price falls have been relatively muted over the past year. Chart 3.9 shows
a range of measures of house prices since February 2020. It shows that during the
pandemic period and its immediate aftermath, house price inflation was rapid: the official
ONS measure of house prices indicates that prices rose by around 25% between
February 2020 and the end of 2022. Since then, the official measure has indicated
broadly flat prices, although other more forward-looking measures suggest prices might
have fallen somewhat. There is some evidence that the divergence between these series
is partly due to cash-buyer transactions, which are captured in the ONS data but not in
data from mortgage lenders. The proportion of cash-buyer transactions has been elevated
but has now fallen back, so the divergence in price indices may shrink in coming months.
In real terms, after taking account of inflation, house prices have fallen by much more than
the nominal change. Based on the official ONS measure, real house prices have fallen by
around 7% since they peaked in January 2022.
Lower house prices could affect household consumption in two main ways: through direct
wealth effects and through the availability of collateral for loans. Evidence suggests that,
on average, direct effects are not large (Barrell et al (2015)). This is because, while
property-owning households cut consumption when they experience a fall in their housing
wealth, these effects on aggregate consumption are relatively small. Indeed, they may be
reduced somewhat by an opposite effect in which lower house prices represent an
effective boost in wealth for future potential buyers. To the extent to which there are small
direct effects from changes in wealth values, evidence suggests this relates to an increase
in precautionary saving. The latest NMG survey indicates that some households are
reporting planning to save more in the coming months in response to lower house prices,
although the numbers were small. Bank analysis suggests that the collateral channel, in
which falling house prices reduce households’ available assets for borrowing, is more
important.
Together, the impact of interest rates via broader housing market effects is estimated to
grow over time. The reduction in the level of consumption from these effects by 2023 Q3
is estimated to be just under ½%. However, as asset prices and households continue to
adjust, that impact is likely to increase. Bank staff project that the overall reduction in
consumption from these effects will grow to over 2% by the end of 2026. These estimates
are uncertain and evidence suggests that the relationship between house prices and
consumption can vary over time (Benito et al (2006)).
Chart 3.9: Some measures of nominal house prices have fallen somewhat in recent
months
House price indices (a)
Sources: Nationwide, ONS, Refinitiv Eikon from LSEG, Rightmove.co.uk, S&P Global/Halifax and Bank calculations.
(a) The final data point for the ONS UK House Price Index is August 2023. Halifax, Nationwide and Rightmove data are
advanced to reflect the respective timing of each data source in the house-buying process.
…and also reduce financial wealth, although the impact on consumption is

estimated to be smaller.
Interest rate rises will also reduce non-housing asset prices. Indeed, net financial wealth
relative to household incomes fell materially in 2022 despite no reduction in nominal
household deposits (Broadbent (2022)). However, changes in household financial wealth
tend to have less overall impact on demand because most households do not own
significant non-housing and non-pension wealth. The effect can be important for those
households at the top of the wealth distribution where, prior to the pandemic, the richest
tenth of households had 17% of their total net wealth in financial assets. The consumption
effect of reductions in the value of financial wealth are captured within the purple bars in
Chart 3.7.
Renters are also affected by the impact of interest rates on the housing sector.
Although not directly affected by rising interest rates, households in the rental sector may
also face increased housing costs, leading to further reductions in consumer demand.
Specifically, rising interest rates increase costs for buy-to-let (BTL) landlords with a
mortgage and reduce their returns through lower house prices. Landlords may try to pass
on their costs through rent increases. In the long term, rent rises will be driven by
household income and housing supply growth. However, given information asymmetries,
moving costs, and other frictions within the rental market, landlords may temporarily have
market power to raise rents. Landlords may also choose to sell their property, and there is
some evidence that recent market exit by landlords has caused a degree of shrinkage of
the private rented sector. Evidence from the Bank’s Agents suggests some smaller BTL
investors have left the market due to regulatory changes (the scale of selling in the BTL
sector is discussed in Bank of England (2023)).
Together, these effects appear to be contributing to rapid increases in rents. The CPI
measure of rents rose by 6.4% over the year to 2023 Q3 – the fastest pace since 1994.
This measure is also a lagging indicator of the potential impact of interest rate rises on
rents as it measures rent increases across all rental properties rather than the increases
faced by those moving home. Estimates from Rightmove suggest that average new rents
rose by 10% over the year to 2023 Q3. Most of this rapid increase in rents will reflect high
nominal income growth during the period of high inflation. But higher rents from other
factors may cause households to cut back on other forms of consumption, reducing
demand in the wider economy. More broadly, renter households who are net borrowers
report similar impacts of higher interest rates on their finances as mortgagor households
(Chart 3.8).
Housing investment
The impacts of interest rates on the housing market also reduce housing
investment, for example by reducing the number of housing transactions.
Housing investment is likely to be reduced by higher interest rates. This form of
investment makes up only around 5% of overall GDP but is one of the most variable
components, meaning that it can have an outsized effect on aggregate growth over the
business cycle. For example, during the 2008 financial crisis, falls in housing investment
accounted for close to a quarter of the overall fall in GDP. This means that the impact of
interest rates on housing investment is particularly important for the transmission of
monetary policy.
As shown in Chart 3.10, the ONS splits housing investment into three main categories:
investment in new dwellings; improvements, repair and maintenance of existing dwellings;
and transfer costs, which include many of the costs of moving home such as legal fees.
Each of these can be affected by interest rates.
Higher interest rates will result in a lower real return on building new homes because it will
reduce the expected future selling price. It will therefore encourage housing developers to
reduce investment, and indeed this is what has happened over the past year (green bars
in Chart 3.10). Most indicators of new construction are consistent with a continued drag
from interest rates on this part of housing investment.
Higher interest rates have contributed to a reduction in housing transactions by reducing

housing demand. The reduction in housing transactions directly reduces total transfer
costs (orange bars in Chart 3.10), which make up around a fifth of total housing
investment. Mortgage approvals for house purchases, a key part of housing transactions,
have averaged below 50,000 per month in 2023. This is the lowest sustained level since
the aftermath of the financial crisis in 2008–09.
The connection between higher interest rates, lower housing transactions and investment
in existing dwellings is less clear. Prior to the pandemic, investment in existing dwellings
had a positive correlation with housing transactions. Part of that may reflect people
choosing to make investments in homes when they move. However, the relationship
between transactions and investment in existing dwellings has weakened since then,
potentially reflecting changes in household preferences after the pandemic. Investment in
existing dwellings (gold bars in Chart 3.10) is yet to fall.
Overall, housing investment has fallen by 6.4% in the year to 2023 Q2, reflecting the falls
in new dwellings investment and transfer costs. Housing investment is projected to fall by
a further 9.4% by the end of 2026.
Chart 3.10: Housing investment has fallen since early 2022, with lower investment
in new dwellings and lower transfer costs the key drivers
Real housing investment (a)
(a) Dashed line shows the latest Bank forecast for total real housing investment. Private existing dwellings investment
captures improvements, repair and maintenance of existing dwellings. The other category mostly comprises dwelling
investment in existing and new dwellings for non-financial public corporations. The total is calculated as the sum of the
individual components. The final data outturns refer to 2023 Q2 and the final forecast period is 2026 Q4.
Business investment
Businesses report that interest rates are an increasingly important concern…
Interest rate rises impact businesses through many of the same mechanisms laid out
above, including increased loan costs for those with debt and reduced assets available for
collateral. There is evidence that the increase in interest rates so far is becoming more
salient for businesses. Chart 3.11 shows the share of businesses reporting various issues
as the primary concern for their business. High inflation and energy prices have
consistently ranked as the main concerns. The share of businesses most concerned
about interest rates is small but it has risen, up from close to zero in much of 2022 to 7%
of businesses in October 2023.
Chart 3.11: Concerns around interest rates are rising but remain below other
factors
Proportion of businesses reporting select issues as the main concern for the business (a)
(a) Results are based on responses to the question: ‘Which of the following, if any, will be the main concern for your
business?’ for the following month. Some months’ data have two results, where the survey has asked for that month in
more than one wave. Where that is the case, the results have been averaged. Results are weighted to match the count
of all businesses with 10 or more employees. The final data points refer to October 2023.
…and that concern is reflected in expected business investment growth.

Rising interest rates are likely to contribute to a reduction in business investment growth.
Evidence from the Decision Maker Panel (DMP) from January 2023 suggested that
interest rates were expected to reduce business investment by 8% on average over the
following year. This effect was driven by only a third of businesses, as many businesses
do not have debt and may not be affected by interest rate changes directly, or do not
make investments. Despite this, some firms without debt expected to cut their investment
as a result of higher interest rates. This suggests some of the estimated impact on
investment is potentially capturing second-round effects of reduced demand in the
economy limiting the need for additional investment.
Headline business investment growth in 2023 H1 has been strong: rising 4.1% over 2023
Q2 alone and 9.2% compared to 2022 Q2. However, this may not provide a clear steer on
the effect of interest rates due to erratic factors affecting the data. The ONS (2023) report
that strong investment growth in 2023 Q1 was likely affected by the end of the
Government’s temporary additional tax relief on business investment. And the strong
growth in Q2 reflected transport investment which tends to be volatile. Indeed, the ONS
(2023) report that acquisition of new aircraft was a large contributor to the quarterly figure.
In the latest DMP, businesses in 2023 Q2 expected nominal capital expenditure to grow
by an average rate of 2.7% over the coming year, down from a 6.1% expected increase in
2023 Q1. A wide range of factors influences businesses’ investment decisions; see Box D
for evidence on these from the Bank’s Agents. Real business investment is projected to
fall by just over 1% in 2024 and to be broadly flat in 2025, before increasing by 2% in
2026 (Section 1).
The exchange rate channel

Increasing interest rates across countries have limited the impact of the exchange
rate channel on UK demand growth.
Increases in UK interest rates relative to other countries’ rates would, all else equal, cause
the pound to appreciate. An exchange rate appreciation makes imports cheaper and
exports more expensive. Cheaper imports reduce UK inflation directly, because UK
households consume imported products, and indirectly, as imported goods and services
are used by firms in supply chains. There are also effects on UK activity through falling net
trade as UK exports become less competitive globally.
The exchange rate channel of monetary policy is particularly important for the UK
compared to other advanced economies because a high share of UK economic activity
involves trade with countries using different currencies.
Given most advanced economies have been raising rates at the same time as the UK, the
value of the pound has not appreciated since rate rises began. That suggests that, other
things equal, the impact on demand growth from monetary policy induced changes in the
exchange rate has been relatively limited to date. That said, had Bank Rate been kept at
the post-pandemic low, sterling might well have depreciated materially, leading to
additional inflation. Moreover, rate rises abroad have reduced demand in those countries
with a consequent reduction in demand for UK exports to those countries.
3.4: Conclusion
In the MPC’s central projection, demand growth remains weak by historical
standards. A margin of slack opens up which helps to bring inflation back to the
2% target.
As set out above, income growth, saving behaviour, and the impact of higher Bank Rate
are key factors affecting demand in the economy at the moment. In the MPC’s central
projection, GDP growth stays below historical averages over the forecast period. This
reflects the restrictive stance of monetary policy, which weighs to an increasing extent on
the level of demand, although the impact on quarterly GDP growth is currently around its
peak. A margin of slack opens up in the economy, which helps to bring inflation back to
the 2% target. The projection for demand, and the risks around it, are discussed in more
detail in Key judgement 1 in Section 1.
Annex: Other forecasters’ expectations
This annex reports the results of the Bank’s most recent survey of external forecasters.
Responses were submitted in the two weeks to 20 October and are summarised in Chart
A. These are compared with the MPC’s modal projections, which are conditioned on a
range of assumptions (Section 1.1) that may differ from those made by external
forecasters.
On average, respondents expected GDP to rise by 0.6% in the four quarters to 2024 Q4
(left panel, Chart A). Responses ranged from -0.5% to 2.2%. Four-quarter GDP growth
was then expected to rise, on average, to 1.4% in 2025 Q4 and remain at 1.4% in 2026
Q4. These forecasts are higher than the MPC’s modal projections for 2025 Q4 and 2026
Q4 of 0.4% and 1.1% respectively.
External forecasters expected an unemployment rate of 4.8% in 2024 Q4, higher than the
MPC’s projection of 4.7% (middle panel, Chart A). The average external forecast then falls
to 4.6% for 2025 Q4 and 2026 Q4. By comparison, in the MPC’s projection, the
unemployment rate increases to 5.0% in 2025 Q4 rising to 5.1% in 2026 Q4.
CPI inflation was expected to fall on average, to 2.4% in 2024 Q4, a slightly faster decline
than the MPC’s projection of 3.1% (right panel, Chart A). The average forecasts for 2025
Q4 and 2026 Q4 were broadly in line with the 2% target at 2.1% for both periods, a little
above the MPC’s modal projections at 1.9% and 1.5%.
Chart A: At the three-year horizon, external forecasters expected four-quarter GDP

growth to be 1.4%, the unemployment rate to be 4.6%, and CPI inflation to be 2.1%
Projections for GDP, the unemployment rate and CPI inflation
Glossary and other information
Glossary of selected data and instruments

AWE – average weekly earnings.
CPI – consumer prices index.
CPI inflation – inflation measured by the consumer prices index.
CPIH – consumer prices index including owner-occupiers’ housing costs.
DMP – Decision Maker Panel.
ERI – exchange rate index.
GDP – gross domestic product.
HICP – harmonised index of consumer prices.
LFS – Labour Force Survey.
M4 – UK non-bank, non-building society private sector’s holdings of sterling notes and

coin, and their sterling deposits (including certificates of deposit, holdings of commercial
paper and other short-term instruments and claims arising from repos) held at UK banks
and building societies.
MWSS – Monthly Wages and Salaries Survey.
OIS – overnight index swap.
PCE – personal consumption expenditure.
PMI – purchasing managers’ index.
PPI – producer price index.
RPI – retail prices index.

Abbreviations
BTL – buy-to-let.
CCS – Credit Conditions Survey.
CFO – chief financial officer.
CIPS – Chartered Institute of Purchasing and Supply.
ECB – European Central Bank.
EU – European Union.
FCA – Financial Conduct Authority.
FOMC – Federal Open Market Committee.
FPC – Financial Policy Committee.
G7 – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
GfK – Gesellschaft für Konsumforschung, Great Britain Ltd.
HMRC – His Majesty’s Revenue and Customs.
HMT – HM Treasury.
ILO – International Labour Organization.
IMF – International Monetary Fund.
IT – information technology.
LTV – loan to value.
MIDAS – mixed-data sampling.
MPC – Monetary Policy Committee.
MTIC – missing trader intra-community.
OBR – Office for Budget Responsibility.
OFC – other financial corporation.

Ofgem – Office of Gas and Electricity Markets.
ONS – Office for National Statistics.
OPEC – Organization of the Petroleum Exporting Countries.
PAYE – Pay As You Earn.
PPI – payment protection insurance.
PPP – purchasing power parity.
REC – Recruitment and Employment Confederation.
RTI – Real Time Information.
S&P – Standard & Poor’s.
SME – small and medium-sized enterprise.
WEO – IMF World Economic Outlook.
Symbols and conventions

Except where otherwise stated, the source of the data used in charts and tables is the
Bank of England or the Office for National Statistics (ONS) and all data, apart from
financial markets data and results from the Decision Maker Panel (DMP) Survey, are
seasonally adjusted.
n.a. = not available.
Because of rounding, the sum of the separate items may sometimes differ from the total
shown.
On the horizontal axes of graphs, larger ticks denote the first observation within the
relevant period, eg data for the first quarter of the year.
1. The ONS has published estimates based on very early information from the developmental TLFS, covering the six
months to August 2023, but these are only indicative and are not seasonally adjusted.

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Bank of England

Monetary Policy Report

Monetary Policy Committee

Monetary policy at the Bank of England

The objectives of monetary policy

The 2% inflation target is symmetric and applies at all times.

The instruments of monetary policy

The Monetary Policy Report

The Monetary Policy Committee

• Andrew Bailey, Chair

© Bank of England 2023

Monetary Policy Summary 4

Box D: Agents’ update on business conditions 72

Glossary and other information 102

Monetary Policy Summary

1: The economic outlook

Table 1.A: Forecast summary (a) (b)

2023 Q4 2024 Q4 2025 Q4 2026 Q4

GDP (c) 0.6 (0.9) 0 (0.1) 0.4 (0.5) 1.1

Unemployment rate (e) 4.3 (4.1) 4.7 (4.5) 5 (4.8) 5.1

Excess supply/Excess demand (f) 0 (¼) -¾ (-¾) -1½ (-1½) -1½

1.1: The conditioning assumptions underlying the MPC’s

Table 1.B: Conditioning assumptions (a) (b)

Average Average 2022 2023 2024 2025 2026

Sterling 100 82 78 81 (82) 80 (81) 80 (81) 79

Oil prices 39 77 89 90 (79) 81 (75) 77 (72) 74

Gas prices 29 52 201 118 (113) 142 (139) 117 (114) 99

Nominal 7¼ 2¼ 4 6¼ (4) ¾ (3) 1¾ (1½) 2½

1.2: Key judgements and risks

Overall in the Committee’s November projection, UK GDP is projected to remain broadly

Relative to the August Report projection, four-quarter GDP growth is expected to be

Within the expenditure components underpinning the November GDP projection

Internationally, the risk of higher commodity prices, including related to geopolitical

1.2: Key judgement 2

in the ONS temporarily ceasing to publish LFS estimates of employment, unemployment

As discussed in Box B, the Committee is therefore continuing to consider the collective

Although aggregate supply is expected to be relatively subdued, particularly in the near

In part reflecting indications of relatively optimistic longer-term expectations for output,

Chart 1.2: Unemployment rate projection based on market interest rate

In projections conditioned on the alternative assumption of constant interest rates at

1.2: Key judgement 3

The MPC is continuing to monitor closely indications of persistent inflationary pressures

2023 Q4 2024 Q1 2024 Q2 2024 Q3

CPI inflation 4.6 4.4 3.6 3.3

2024 Q4 2025 Q1 2025 Q2 2025 Q3

CPI inflation 3.1 2.5 2.1 2.1

2025 Q4 2026 Q1 2026 Q2 2026 Q3 2026 Q4

CPI inflation 1.9 1.9 1.7 1.6 1.5

(a) Four-quarter inflation rate.

In the modal projection conditioned on the alternative assumption of constant interest

Average Average 2022 2023 2024 2025 2026

World GDP 3¼ 2½ 3 1½ (1½) 1¾ (1¾) 2 (2) 2

World GDP 4¼ 3¾ 3¼ 3 (2¾) 2¾ (2¾) 3 (3¼) 3

Euro-area 2¼ 1½ 3½ ½ (½) ¾ (1) 1¾ (1½) 1¾

US GDP (f) 3 2½ 2 2¼ (1½) 1½ (¾) 1¼ (1½) 1½

Emerging 5½ 5 4 4 (4) 3¾ (3¾) 4 (4¼) 4

of which, 10 7¾ 3 5¼ (5¼) 4¼ (4½) 4¼ (4¾) 4¼

UK GDP (i) 2¾ 2 4¼ ½ (½) 0 (½) ¼ (¼) ¾

Household 3¼ 2 5¼ ½ (½) 0 (¾) ½ (¾) 1