5 February 2016 Focus Europe: Dark clouds, no storm yet and a resilient financial system. Indeed, in comments to Radio 5's Wake Up To Money programme BoE Deputy Governor Broadbent said that it was important not to over-emphasise the reduction in the Bank's growth forecasts which he described as not being a large revision; rather, he focused on the supportive fall in oil prices and continued expectations for robust growth in Europe. !Figure 3: Near • tern growth revised down by up to 0.4pp 'Figure 4: Wage growth has disappointed 3.00 1 4.50 Evolution of the BoE's average weekly I forecasts.% earnings growth yoy 2.76 1 4.00 2.60 I 3.60 2.25 -I Feb 2016 3.00 I -44•Nov 2015 Iwo--2016 2.00 1 BoE modal GDP growth forecast based on market 2.60 wi-2016 —2017 1.75 1 % 2.00 interest rates, yoy 2018 1.50 1.60 2016 2017 2018 2019 2014 Seam Dear*. ark Ilatit a' &bygone J deity.- ans... an. an d &Val The explanation behind the fact that a weaker economic growth forecast did not generate a fall in inflation below the 2% target 2-3Y hence was that the Bank simultaneously lowered its view on demand and supply growth. The weaker supply story was in part related to lower average hours which the Bank now expects because workers are more confident in taking annual leave given strong real wage growth and increased job security. In terms of the Bank's other conditioning forecasts, it is worth focusing on the household sector. Consumer spending growth was revised down this year and next, the result of weaker incomes. Indeed, both average weekly earnings and real post-tax income growth were seen as weaker relative to three months ago, which explains why it takes an even larger fall in the saving ratio on the BoE's forecasts (to 2.5% on average in 2017• IC) in order to achieve a slower rate of consumer spending growth. This contrasts with the OBR's November 2015 forecast for the saving ratio during the same period of 4.4%, nearly 2pp