Economies around the world have been feeling the pinch of declining growth and subdued inflation. Although there is not a clear separation between the haves and have nots, there are a couple of economies that have gained traction and are not purely liquidity driven. These countries are now situated where the central banks that preside are poised to begin a monetary policy normalization. This is the process of raising interest rates back to a level that would be considered fairly normal historically based on the current level of economic growth.

The United States and the United Kingdom are the two developed economies that are experiencing the best relative performance. In its last meeting on interest rates the Bank of England left policy unchanged and the minutes show an unchanged 8-1 vote in favor of stable rates. Committee members where concerned about inflation as opposed to full employment and they deferred to the November review. So like other central banks, the BoE is taking a wait and see stance for now.

The implicit tightening bias remained in place, but clearly, like elsewhere concern is creeping in, especially as not only the short term inflation outlook is lower, but also uncertainty about the global growth outlook is rising. In order for the BoE to meet its inflation target, core inflation needs to rise and energy prices aside, the inflation outlook will be determined by the balanced.

Regarding the labor market, the central bank noted the levelling off in the decline of unemployment and claimant count measures, but committee members seemed uncertain whether this was a reflection of reduced demand, or a sign of friction in matching supply and demand. Surveys seem to suggest that skill shortages have become increasingly wide spread. This seems consistent with the fact that hiring intentions continue to appear robust and that the number of job vacancies actually rose in the three months prior to the meeting, following small declines earlier in the year.