Ben Broadbent, MPC member of the Bank of England, was the guest speaker of a Finance Club event held at London Business School on 23 September 2013. Here are the slides to his presentation on forward guidance.

1. Ben Broadbent
External MPC member
23 September 2013
London Business School, Regents Park
Conditional guidance as a response to supply
uncertainty

2. Surveys suggest significant pick-up in growth
Source: ONS, CBI, Markit Economics, Bank calculations
(a) Weighted average of the Markit/CIPS PMIs and the CBI Distribution Trades surveys.
1997 1999 2001 2003 2005 2007 2009 2011 2013
-9
-7
-5
-3
-1
1
3
5
7
38
43
48
53
58
63
%
Combined CIPS & CBI Dist. Trades (LHS, lagged 1Q)
Marketsector GDP growth (RHS)
(a)

3. Source: SNL Financial, Datastream and Bank calculations.
(a) CDS spreads of banks weighted by assets as of end 2012.
0
50
100
150
200
250
300
350
400
2008 2009 2010 2011 2012 2013
bpsUK US Euroarea
Follows large drop in banks’ funding
costs through second half of 2012(a)

4. Source: ONS, CBI, Markit Economics, Bank calculations
Productivity unusually weak even
allowing for scale of downturn

5. Source: ONS and Bank calculations
(a) Covers the entire population (~2m per year) of UK private non-financial companies, excluding those in the agriculture, mining
and utilities sectors. Decomposition methodology is based on Baily, Bartelsman and Haltiwanger (2001). See Barnett, Barriel,
Chiu and Franklin (2013), Bank of England Working Paper, forthcoming.
(b)This work contains statistical data from the ONS, which is Crown Copyright. The use of the ONS statistical data in this work
does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses
research data sets that may not exactly reproduce National Statistics aggregates.
Productivity growth involves significant
reallocation across firms(a)(b)

6. Source: ONS, EU KLEMS and Bank calculations
(a) Size-weighted variance of real prices, relative to pre-crisis trends, across 29 sectors. See appendix for details
Significant increase in price dispersion(a)

7. Source: Bank of England
(a) “-“ indicates periods during which data were not available..
Q: Did investment respond
positively to rates of return?
Pre-crisis
2007
recession
1980’s &
1990’s
recession
UK
Firm-level
ONS Annual
Business Survey
Yes No -(a)
Thomson
Reuters
WorldScope
Yes No -(a)
Industry-level
ONS sectoral
data
Yes No Yes
US
Industry-level
EU KLEMS
sectoral data
Yes Yes Yes
Unlike in US, UK investment less sensitive
to profitability than in earlier recessions

8. Source: REC employment survey and Bank calculations
(a) Employee growth for Q3 2013 approximated by that between April and July.
30
35
40
45
50
55
60
65
70
75
-4
-3
-2
-1
0
1
2
3
4
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ONS privatesector employee growth
REC (lagged 3 quarters)
%, yoy(a)
Surveys suggest private-sector employment
will continue to grow for a while yet

9. Source: ONS and Bank calculations
(a) Includes government supported training schemes and unpaid family workers . (b) Year to May-July 2013.
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2000-07 2007-09 2009-12 2012-13
Annual avg change
inU (%)
Gen. Government Privatesector
Changein workforce Actual
(a)
(b)
Contributions to changes in unemployment rate

10. Source: HMT
(a) Forecasts taken from June and July of each year for GDP and employment growth in the following calendar year. Blues
dots are forecasts made for calendar years 2004-07; red dots for 2010-12.
Professional forecasters’ forecasts of GDP and
employment growth pre- and post-crisis(a)

11. Source: ONS, CBI, Markit Economics, Bank calculations
(a) Average MPC vote calculated as the average voting result on Bank Rate and QE, with every extra £25bn of QE treated as if
cutting Bank Rate by 25bps. See Joyce, Tong and Woods (2011).
1998 2000 2002 2004 2006 2008 2010 2012
-100
-80
-60
-40
-20
0
20
35
40
45
50
55
60
bpsCombined CIPS & CBI Dist. Trades (LHS)
AverageMPC vote(Bank Rate only)
AverageMPCvote(including QE)
Average MPC votes against composite PMI indicator(a)

12. Source: Own calculation (see Appendix)
0
0.3
0.6
0.9
0 0.5 1 1.5 2 2.5
Unemployment
Output
Standard deviation of supply relative to that of demand
Weights in optimal estimate
of output gap
Greater uncertainty about supply means unemployment a
more valuable indicator for policy, output growth less so

13. Ben Broadbent
External MPC member
23 September 2013
London Business School, Regents Park
Conditional guidance as a response to supply
uncertainty