As a result, the underlying inflation indicator, which excludes energy and food, rebounded to 3.4% in April.8 Overall, in 2022 Q1 GDP in Spain was 3.4 pp below the pre-pandemic level, while in the euro area it stood 0.5 pp above its pre-crisis mark. These differences are smaller in the case  4  In particular, some services, such as hospitality and recreation and leisure, are still a long way off recovering their February 2020 employment levels. Conversely, employment is clearly above pre-crisis levels in information and communication activities and in nonmarket sectors. 5  In terms of data from the Spanish Labour Force Survey (EPA, by the Spanish acronym), public sector employment was 6.6 pp higher than its pre-crisis level, whereas private employment was 0.6 pp below. 6  The apparent discrepancy between the behaviour of activity and that of employment was particularly marked in some sectors. In agriculture, industry and construction, effective social security registrations exceeded the pre-crisis level by 0.7 pp on average in 2022 Q1, while their overall GVA remained 6 pp below that level. The divergence was particularly notable in construction: in 2022 Q1 employment in this sector was 3.8 pp above its pre-crisis level, but GVA remained 12.9 pp below that mark. 7  In fact, the HICP series dates back to 1997. Consequently, for the period prior to that the comparison is made with respect to the consumer price index.
Stress tests provide an assessment of whether the capital buffers held by banks are sufficient to absorb losses in a stress. So they are well suited to guide the calibration of countercyclical capital buffers. The Bank of England is developing a countercyclical approach to annual stress testing of banks. Rather than applying a constant level of stress from year to year, the severity of the stress would vary with the cycle. It would increase as risks build up and decrease after they have abated or crystallised. The parameters of the scenario – falls in GDP, asset prices, employment etc – would be most severe during periods of exuberance when credit and asset prices were growing quickly and the financial system was least concerned with risk. The parameters would be less severe when exuberance had evaporated and prices had corrected, which is often the time when the system is most risk averse. We aim to develop this approach over the next three years, starting with the 2016 stress test. Along with a regular assessment of data and indicators it will be a key part of a forward looking, data driven approach to setting the UK’s countercyclical capital buffer for banks. We have set out more details in a recent Bank paper.2 As always, one issue will be assessing the costs and benefits through time in so far as that is practicable. Another is where to set the countercyclical capital buffer in different parts of the cycle to enable it to be relaxed at times of stress.