General fiscal tightening Slide 1

(fiscal tightening)

Demand is depressed going forward; as the seemingly inevitable fiscal tightening occurs. The car scrappage scheme, which has increased vehicle sales by 200,000 in the last 3 months, is coming to an end in Feb 2010. It is doubtful whether private demand will replace public demand in this sector. There is also uncertainty amongst consumers about their disposable income going forward. As well as the announced rises in income tax and national insurance contributions, there is a possibility that we might see public sector pay freezes or cuts, affecting 1 in 5 of the UK workforce who work in the public sector. These expectations over disposable income may curtail spending and depress inflationary pressure.
(manufacturing)

Slide 2

Total production output decreased by 0.8 per cent in Q3 of 2009 compared with the previous quarter. Still down 10.5% from Q3 2008 Between August and September, manufacturing output rose by 1.7%. A rise in employment is still doubtful and so there are downward pressures on inflation.

Slide 3 (services) Output in services declined 0.1% in the three months to August. This suggests that we have bottomed out and are approaching a recovery. However, as the graph shows, there is still a declining services industry. This suggests that employment will not rise in the close future and so therefore there will be downward inflationary pressures. Slide 4 (lending) The graph shows the rate of lending to private non-financial corporations, households and individuals is slowing, if not reducing outright. The reason for this is twofold 1. Banks are trying to repair their balance sheets, having incurred huge losses such as that of RBS of 2.2bn between July and September this year. 2. There is also a lack of demand for credit from consumers and businesses; as Michael will go on to discuss. The lack of credit, to finance consumption and investment will stifle demand and put downward pressure on inflation.