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The BoE expects growth to slow sharply in the coming months, from 2.0% in 2016 to 0.8% in 2017 on annual average (versus 2.3% expected previously). The relatively strong figure for 2016 (more than 0.5% above our forecast) is due to the upside surprise in Q2 (0.3ppt above the BoE's expectations) and the expectation of a near-term recession to be averted.
In 2015, unit wage costs were stable in France after rising 1.2% in 2014. While wages increased by 1.4%, productivity gained 1.2% and payroll taxes dropped 0.3% as a result of the mechanisms in the Responsibility Pact.
Inflation reached an annualised 14.8% in June and 18.4% for food products alone. The Central Bank's inflation target (9.1% according to the IMF) has been substantially overshot. It has increased its key rate to 11.75%, the highest rate since the 2008 crisis. Elsewhere, pressure on the Pound shows no sign of letting up. The Egyptian currency is trading at 8.8 per USD at the official rate, but at 11 on the black market; the 20% differential is the highest for a year.
Prices for pre-owned homes stabilised in 2015 and rose slightly in early 2016 In Q1 2016, prices rose 0.5% over twelve months. They rose by 1.1% for houses, but apartments were down by a very slight 0.2%. They increased by 0.2% in Greater Paris, 0.7% outside Greater Paris, and by 1.2% in inner Paris.
In the wake of Brexit, French companies are less likely to want to invest in the UK. Similarly, UK firms will invest less in Europe and France. The net balance of UK investment is positive vis-à-vis France. In terms of incoming FDI for France, the UK was the second largest investor in 2013-2014, after Luxembourg, with close to 10 billion euros over the two years.
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