By Christopher Hackworth, Amar Radia and Nyssa Roberts of the Bank’s Monetary Analysis Directorate.
Macroeconomic performance in the United Kingdom has been disappointing in recent years: for most of the post-crisis period, GDP growth has been unexpectedly weak, and inflation unexpectedly strong. That unexpected weakness in GDP reflects a combination of weaker growth in the United Kingdom’s trading partners, tighter domestic credit conditions and slower dissipation of uncertainty. Unanticipated rises in energy and other imported costs can broadly account for the surprising strength in inflation since mid-2010. Weak effective supply is likely to have counteracted the impact of weak demand on inflation.