Market overview Confidence returns but incomes lag
real take-home pay growth is in prospect. Second . . . consumer confidence is supported by lower interest rates, a strong labour market and improved pay prospects. Third, investment growth is strong . . . [reflecting] expanding demand, improved credit conditions and the clarity that interest rate rises are likely to be gradual and limited.” BoE guidance on rates changed
repeatedly. In June, Carney warned rates could rise “sooner than markets expect”. In August, he insisted: “The appropriate bank rate is not far from where it is today.” In September, we could “expect rates to begin to increase”. But by November the message was that rates would not rise before October 2015 and base rate (locked at 0.5% since March 2009) was forecast to remain below 1% into 2016. This may be just as well since a survey
by ICM Research published in November suggested one third of UK mortgage borrows would struggle to meet repayments if interest rates rose two percentage points. Carney indicated that when rates do rise, they would do so in stages to around 3% or 2.5 percentage points. Of course, a rise in rates would most likely boost the value of the pound. Without this,
The Bank of England expects real pay growth to pick up to around 2% by the end of 2015
economists suggested sterling was likely to fall against a strengthening dollar. Sterling fell by 8% from early July to mid-November, with an obvious impact on travellers’ cash. Meantime, the BoE expected “annual real
pay growth to pick up from zero to around 2% by the end of next year”. This may be right, but Carney’s forecast of lower inflation resulting in wage growth was immediately contradicted by data showing inflation rose again to 1.3% in October. In August, inflation measured 1.5% against annual pay growth of 0.6% and the BoE monetary policy committee (MPC) warned in November: “Pay growth is likely to remain subdued.” The failure of incomes to keep pace with prices has so far proved endemic despite inflation falling due to sustained pressure on food prices and a fall in commodity prices – most sharply in oil.
AVERAGE LENGTH OF STAY ABROAD: 2007-2013 All trips, average no of nights
AVERAGE LENGTH OF STAY ABROAD 2007-2013 All trips, average number of nights
20 15 10 5 0 Europe North America World beyond Europe/N America Source: ONS 8.3 8.5 8.5 8.8 8.4 8.3 8.3 13.7 14.113.8 14.7 13.8 13.7 14.5 16.6 16.316.2 16.6 16.1 15.7 15.8
2007 2008 2009 2010 2011 2012 2013
The oil price The oil price fell almost 40% between June and November, the price of Brent crude dropping from $112 a barrel to near $70 despite a series of threats to oil supplies – including the seizure of large swathes of Iraq by Islamic State (Isis) and chaos in Libya. The price drop was a welcome
development for airlines and should benefit air passengers as hedging unravels, but it pointed to a slowdown in the world economy. The principal reason for the fall is that
North American oil production has surged as global demand slowed. US crude output, up almost 80% since 2008, has shifted power away from members of the Organisation of Petroleum Exporting Countries (Opec) – of which only Saudi Arabia produces enough oil to shift the market by cutting back. There was speculation the US had acted
to discipline Russia over Ukraine, and maybe also Iran. But a bigger factor may be Saudi Arabia, which resisted calls to cut production and made clear its intention to maintain its market share against the US – particularly in
10 | Travel Weekly Insight Annual Report 2014
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