| Research and analysis |
Research work published by the Bank is
intended to contribute to debate, and does not necessarily
reflect the views of the Bank or of MPC members.
How should we think about consumer
confidence?
(121k)
(by Stuart Berry of the Bank's Sterling Markets Division
and Melissa Davey of the Bank's Conjunctural Assessment
and Projections Division).
In the United Kingdom, movements in confidence have been
closely related to annual real consumption growth over the
past 30 years. But both these series have common determinants.
This article shows that the standard economic determinants
of consumption such as income, wealth and interest rates
can 'explain' a large part of the movements in consumer
confidence. However, confidence is also affected by non-economic
events, or may react in a complex manner to unusual economic
events. We find that such 'unexplained' movements in consumer
confidence do not appear to be closely related to households'
spending decisions on average. So although consumer confidence
indices are published well ahead of official data on consumer
spending it is important to consider why confidence has
changed before assessing its likely implications for consumption.
Household secured debt
(160k)
(by Matthew Hancock of the Bank's Monetary Assessment and
Strategy Division and Rob Wood of the Bank's Structural
Economic Analysis Division).
Deteriorating household sector balance sheets were widely
thought to have exacerbated the recession in the early 1990s.
In recent years households have once more significantly
increased their indebtedness; this has been matched in aggregate
by an accumulation of financial assets. This article analyses
homeowners' financial positions since the late 1980s using
disaggregated data, to assess the extent to which debt may
exert an important influence on the macroeconomy in the
current conjuncture.
Housing equity and consumption:
insights from the Survey of English Housing
(101k)
(by Andrew Benito of the Bank's Structural Economic Analysis
Division and John Power of the Bank's Inflation Report and
Bulletin Division).
This article examines data from the 2003 Survey of English
Housing (SEH) in order to shed light on the link between
gross equity withdrawal and spending. Our analysis suggests
that the bulk of gross withdrawals is not consumed in the
near term. Those who sell a property without purchasing
another one and those who trade down are more likely to
pay off debt or save withdrawn equity than spend the proceeds.
Remortgagors and those who obtain further secured advances
are likely to spend the equity, but we estimate that their
equity constitutes only about a quarter of total gross withdrawals.
Of those who spend equity, financing home improvements rather
than purchasing consumer goods appears to be the most important
use of funds. That is consistent with the relatively weak
relationship between consumption and mortgage equity withdrawal
recently observed in aggregate data.
Why has world trade grown faster than world output?
(137k)
(by Mark Dean of the Bank's International Economic Analysis
Division and Maria Sebastia-Barriel of the Bank's Structural
Economic Analysis Division).
Between 1980 and 2002, world trade has more than tripled
while world output has 'only' doubled. The rise in trade
relative to output is common across countries and regions,
although the relative growth in trade and output varies
greatly. This article attempts to explain why the ratio
of world trade to output has increased over recent decades.
It provides a brief review of the key determinants of trade
growth and identifies proxies that will enable us to quantify
the relative importance of the different channels. We estimate
this across a panel of ten developed countries. This will
allow us to understand better the path of world trade and
thus the demand for UK exports. Furthermore this approach
will help us to distinguish between long-run trends in trade
growth and cyclical movements around it.
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