On balance, the available evidence suggests that spare capacity remains ample. While the falling unemployment rate points to a tightening labour market, wage growth is weak. The output gap is still large and survey-based measures also show considerable slack. Capacity utilisation has started to pick up since the end of 2012, but we expect economic growth to ease again in the second half of this year. Further reductions in spare capacity are therefore likely to be slow. This has important implications for inflation and the outlook for business investment.
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