David Ramsden: What's going on?

Speech by Sir David Ramsden, Deputy Governor for Markets and Banking of the Bank of England, at the Barclays Inflation Conference, London, 7 June 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

An unusual position

UK GDP growth has slowed following the Brexit referendum, and it slowed even more in the first quarter of this year. In the MPC’s May Inflation Report we are forecasting that it will remain subdued over the forecast period. If our forecast materialises, annual growth will have been between 1¼ and 2% for five consecutive years from 2016 to 2020. To give some context, annual average GDP growth has been in this range in only eight of the 50 years before that period, and three of those were since the financial crisis.

It’s been said before but it bears repeating: the UK economy is in an unusual position.

Over the past few years, meanwhile, unemployment has fallen from a high of 8.5% to a forty year low of just 4.2%. Employment has similarly picked up to record highs. Usually you would expect faster growth to be accompanied by stronger employment growth, and vice versa – an empirical fact so robust that economists know it as Okun’s Law.1 Since the financial crisis, however, this law has, if not broken down, at least started working rather differently than before. Unemployment has fallen far more, and employment growth has been far stronger, than might have been expected given the subdued pace of GDP growth