I have noted before the much greater degree of attention to the supply side given by the post-crisis MPC 4  relative to its pre-crisis predecessors. This is clearly accounted for by the much greater inability to forecast the evolution of supply and its impact on inflation (Charts 3 & 4). 2  Mark Carney’s recent speech illustrates that bank rate might have risen by 2-3 percentage points between August 2013 and the end of 2014 if the post crisis MPC’s had followed the reaction function of its pre-crisis predecessors. And the important role that forward guidance played in preventing financial markets and real economy agents acting in expectation of such tightening. 3 Miles (2015) 4 The rate of mentions of ‘supply’ and ‘productivity’ in the minutes of MPC meetings in the past decade has been about twice that in the decade prior to the crisis.
If this is confirmed, as I think probable, the overall picture is of an economy expanding around or a little above its potential rate of growth. The combination of lower rates of productivity and labour force growth mean that potential is growing at around 1.5% about a percentage point below its pre-crisis rate. 9  Trying to make very precise forecasts of the output gap is a fool’s errand but the balance of evidence is there appears to be little slack left in the labour market and little spare capacity in firms. Unemployment is at 4.2% – pretty much the MPC’s revised estimate of the natural rate. Underemployment is low. 10  Non-price measures – for example, surveys of recruitment difficulties and measures of churn in the  labour market – have been signalling increasing labour market tightness for a number of years. 11  Whole economy regular pay growth reached 2.5% in December and has stayed above that level through the first few months of 2018 though there has been a slight slowing in the latest – April – data (from 2.9% in March to 2.8% in April). The higher frequency measure of pay growth, 3 month on 3 month growth, has been above 2.5% for 11 months between last May and March this year – the longest run of such consistent wage growth since the crisis (Chart 7).