At the onset of the crisis, it was not clear that the pandemic would not lead to a slowdown. This can, however, be explained in retrospect. Interest rates have remained low and support measures have significantly cushioned the impact of the crisis on the income of households and companies. Data released since the publication of our report in June show that the price momentum is continuing unabated. Second, it is to be expected that the global low interest rate environment will remain unchanged for some time to come. One reason is that the structural factors behind the downward trend in interest rate levels over the past decade, such as the ageing of the population and the decline in productivity growth, are still in play. Another reason is the expansionary monetary policy pursued by central banks in the advanced economies. Such policy continues to be necessary in order to counteract the impact of the coronavirus crisis. It is therefore to be expected that interest rates will remain low for some time yet, which means that incentives for increased risk-taking will remain in place. 13 This could prolong the period in which growth in mortgage volume and residential property prices is higher than can be explained by fundamental factors. Moreover, the longer the current cycle lasts, the more likely it is that memories of past crises fade and that market participants increasingly disregard the risks in question. Against this backdrop, it is important to continue to closely monitor developments on the mortgage and real estate markets.
The recent fall in oil prices will ease the pressure on firms’ input costs allowing them to restore profit margins without an increase in output prices. Nevertheless, according to surveys, businesses are more likely to raise prices than during the NICE decade. And in their own survey, the Bank’s Agents found that half of those (largely manufacturing) firms which had experienced some erosion of margins were now intending to raise prices. 2  2  Not so bad: not of the same order but also desirable. Speech at the Eden Project, Cornwall, October 2004. BIS Review 94/2006  A change in oil prices does not in itself tell us where overall inflation is headed in the medium term. For that, we need to look at the balance between money spending and potential supply. The growth of total money spending in the economy has picked up in recent quarters – nominal domestic demand rose by 6% in the year to Q2. And the growth rate of broad money and credit in the economy is now higher than at any point since 1990. There is, however, great uncertainty about potential supply. The possibility of continuing migration from the new member countries of the European Union and elsewhere is likely to increase the potential labour force available to UK employers. And it appears that more people of pensionable age are choosing to continue to work.