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Private consumption in France has been resilient, relative to what has been observed in the other main Eurozone economies.
Yields are also very low and we fear that market liquidity may quickly evaporate in an unintended consequence of post-crisis regulation. By the end of 2015, the Fed will be well into its rate-hike cycle and we expect to see the 10Y Treasury at around 3.25%; and, with fears of European deflation mostly dispelled in a year's time, Bund yields will be pushing higher too.
Compositional changes in employment weighed on wage growth in 2014. Factors of particular importance were the changes in the occupational mix leading to a concentration of employment gains in lower-paying jobs, as well as strong growth in self-employment, and in employment among younger and less-experienced workers. These changes are symptomatic of a new structural trend that the OBR would have to take into consideration.
Under the new market interest rate expectations, the MPC's central projections show that CPI inflation is expected to stay significantly below target for much of the forecast period. CPI inflation is expected to decline temporarily below 1% in the near term, which would imply the need for an explanatory letter from the Governor to the Chancellor.
In 2014, transaction volumes are forecast to be down slightly relative to 2013 and stable in the pre-owned sector. Prices in the pre-owned sector are forecast to fall 2.5% y/y after a drop of 1.9% at end-2013. In 2015, volumes should remain stable in the pre-owned sector and pick up a little, by 5%, in the developer new-build segment. Prices look set to fall modestly in the pre-owned sector, by 2%.
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