uk economy update 2015
TRANSCRIPT
Introduction to the UK Economy
What are the key objectives of macroeconomic policy?
Price Stability (CPI Inflation of 2%)
Growth of Real GDP (National Output)
Falling Unemployment /
Raising Employment
Higher Average Living Standards (national income per capita)
Stable Balance of Payments on the Current Account
An Equitable Distribution of Income
and Wealth
Additional objectives of macroeconomic policy
Balancing the budget and reducing the
national debtImproving economic
well-beingBetter regional balance
in the UK economy
Improved access to public services
Improved competitiveness
Environmental sustainability
Actual and Forecast Economic Indicators for the UK
*Data for 2015 and 2016 are forecasts published for the July 2015 Budget
Economic Indicator 2014 2015* 2016*Gross domestic product (GDP) % change 3.0 2.4 2.3GDP levels (2014=100) 100.0 102.4 104.8Output gap (per cent of potential GDP) -1.0 -0.6 -0.4Expenditure components of GDP Household consumption (% change) 2.5 3.0 2.5General government consumption (% change) 1.6 1.2 0.5Business investment (% change) 8.0 6.0 7.2General government investment (% change) 3.4 2.4 -0.1Net trade: (exports - imports) (per cent of GDP) -0.6 -0.5 -0.4Inflation Consumer price index (annual % change) 1.5 0.1 1.1The Labour Market Employment (millions) 30.7 31.2 31.5Average earnings (annual % change) 2.6 2.2 3.6Labour Force Survey unemployment (% rate) 6.2 5.4 5.1Claimant count unemployment (millions) 1.04 0.78 0.73
Recent Macroeconomic Data
Latest annualised GDP Growth (%) 2.6%
GDP per capita (US $, PPP standard) $35,013
Inflation rate (%) 0.1%
Unemployment rate (% of labour force) 5.4%
Fiscal balance (% of GDP) -5.3%
Government debt (% of GDP) 91%
Yield on 10-Yr Govt Bonds (%) 1.5%
Investment (% of GDP) in 2012 15%
Background Information
Currency unit £
Exchange rate system Floating
Current policy interest rate 0.5%
Trade surplus or deficit? Deficit
Current account balance (% of GDP) -4.4%
Main corporate tax rate (per cent) 20%
Global competitiveness ranking for 2014
9th
Economic Freedom Index Ranking 14th
Corruption Perception Ranking 14th
Other Indicators
Latest HDI ranking 14
% of population living below their national poverty line
n/a
Life Expectancy (years) 81.5
Rank for capacity to attract skilled talent 5th
Rank for Innovation and sophistication 8th
Gini coefficient (Latest published estimate) 36.5
Basic Background Information for the UK Economy
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
2017*
2018*
2019*
2020*
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
GDP
grow
th ra
te c
ompa
red
to p
revi
ous y
ear
The chart shows real GDP growth for the UK from 2010-2014. Data for 2015 onwards shows forecast growth using figures from the International Monetary Fund (IMF)
Source: ONS
The UK Economic Cycle in Recent Years
Household Saving Ratio for the UK Economy
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20142015
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Household final consumptionSavings ratio
The chart shows the annual growth in household consumption of goods and services along with the household saving ratio (% of disposable income)
The saving ratio in the UK has been falling since 2010 mainly due to a period of relatively strong consumer spending that has out-paced the growth of real disposable income
%
Capital Investment as a share of UK GDP
This chart shows total investment spending measured as a share of GDP – it is expressed in nominal and in real terms i.e. inflation adjusted.
1980 Q1 Q2 Q3 1989 Q1 Q2 Q3 1998 Q2 Q3 Q4 2007 Q2 Q3 Q40.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
NominalReal
In real terms and expressed as a share of GDP, the level of capital investment spending in the UK has remained stubbornly low.
Key UK Labour Market Data in Recent Years
YearLabour Force
Survey Unemployment
Level
Labour Force Survey
Unemployment Rate
Total Employment
Employment Rate
Thousands Per cent of the labour force Thousands
Per cent of population of working age
2011 2,593 8.1 29,376 70.3
2012 2,572 8.0 29,696 71.0
2013 2,476 7.6 30,043 71.5
2014 2,027 6.2 30,726 72.9
2015 (April) 1,813 5.5 31,053 73.4
Source: HM-Treasury Databank
Unemployment in the UK Economy over Long Run
The unemployment rate has varied over the last 40 years. Our chart shows the peaks over this period – the peak rate has been falling.
1973 1978 1983 1988 1993 1998 2003 2008 2013-4
-2
0
2
4
6
8
10
12
14
11.9
6.9
10.7
4.7
8.5
5.5
18 month change
Labour Force Survey Unemployment Rate (%)
Unemployment by Age in the UK Economy
The decline in unemployment since 2011 has been across all age groups, but has been greater for the 18 to 49 age brackets during this period
16-17 18-24 25-34 35-49 50-64 65+
200
400
600
800
1,000
20112012201320142015 Q1-Q3
Total unemployment, seasonally adjusted
Duration of LFS Unemployment in the UK economy
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1,000
2,000
3,000
Over 24 months12-24 months6-12 monthsLess than 6 months
Total unemployment, seasonally adjusted
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Infla
tion
rate
CPI inflation target = 2%
Inflation Rate in the UK Economy in Recent Years
A lower inflation rate means prices rise more slowly – this is known as disinflation
Source: Office for National Statistics
CPI Inflation in the UK over the last 20 Years
The inflation rate for goods such as clothing and computing equipment has been, on average, lower than for service such as insurance and education
1995 JAN 1996 SEP 1998 MAY 2000 JAN 2001 SEP 2003 MAY 2005 JAN 2006 SEP 2008 MAY 2010 JAN 2011 SEP 2013 MAY-3
-2
-1
0
1
2
3
4
5
6
7
CPI all itemsCPI goodsCPI services
Annual rate of change of consumer prices (%) Source: Office for National Statistics
CPI and Core Inflation in the UK In Recent Years
CPI All Items: Percentage change over 12 monthsCore CPI: Excludes energy, food, alcohol & tobacco
Annual rate of change of consumer prices (%) Source: Office for National Statistics
Jan-05
Aug-05
Mar-06Oct-
06
May-07
Dec-07
Jul-08Fe
b-09Se
p-09Apr-1
0
Nov-10Jun-11
Jan-12
Aug-12
Mar-13Oct-
13
May-14
Dec-14
Jul-15
-1
0
1
2
3
4
5
6
CPI All itemsCore CPI
UK Balance of Trade in Goods and Services
_x0008_2013
Nov
_x0008_2013
Dec
_x0008_2014 Jan
_x0008_2014 Feb
_x0008_2014 Mar
_x0008_2014
Apr
_x0008_2014 May
_x0008_2014 Jun
_x0008_2014
Jul
_x0008_2014
Aug
_x0008_2014 Sep
_x0008_2014
Oct
_x0008_2014
Nov
_x0008_2014
Dec
_x0008_2015 Jan
_x0008_2015 Feb
_x0008_2015 Mar
_x0008_2015
Apr
_x0008_2015 May
_x0008_2015 Jun
_x0008_2015
Jul
_x0008_2015
Aug
_x0008_2015 Sep
_x0008_2015
Oct
_x0008_2015
Nov
-14-12-10
-8-6-4-202468
10
Balance of Trade in Goods Balance of Trade in ServicesBalance of Total UK Trade
£ billion, seasonally adjusted
Britain runs a strong surplus in services but a large and persistent deficit in goods
UK Trade Balances in Goods and Services with the EU
The UK runs a trade surplus with countries such as Ireland but very large trade deficits with countries such as Germany and Spain. Can you explain why?
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-70000
-60000
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
Rest of the EU Spain Netherlands Ireland Germany France
Annual Trade Balance (£ billion)Source: Office for National Statistics
Base Interest Rates and Mortgage Rate in the UK
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Effective mortgage interest rate Base rate
Fluctuations in the UK Exchange Rate Index
2006 2007 2008 2009 2010 2011 2012 2013 2014 201565.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
ERI€ : £$ : £
Key Summary of UK Government Finances 2014-2021
Source: OBR, November 2015
Per cent of GDP
Outturn Forecast
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Revenue and spending
Tax revenues (% of GDP) 35.8 35.8 36.5 36.9 36.9 36.9 37.1
Government spending (% of GDP) 40.9 39.7 39.1 38.1 37.2 36.5 36.4
Size of the budget deficit (% of GDP)
Government borrowing 5.1 3.9 2.6 1.2 0.3 -0.4 -0.7
Cyclically adjusted current budget deficit (% of GDP) 2.4 1.6 0.5 -0.5 -1.2 -1.9 -2.4
The Size of the National Debt:
Public sector net debt (% of GDP) 83.1 82.5 81.7 79.9 77.3 74.3 71.3
The Estimated Output Gap for the UK Economy
The chart shows the estimated output gap for the UK economy. Note that there is a range of estimates from different economic forecasters.
2008 Q32009 Q3
2010 Q32011 Q3
2012 Q32013 Q3
2014 Q32015 Q3
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
November 2015 central es-timateHighest forecastLowest forecast
Negative output gap – i.e. the economy has large margin of spare capacity
Positive output gap – i.e. where actual GDP is above potential GDP – a sign of possible excess aggregate demand
Average UK House Prices by Region
£s
UK
Engla
ndWale
s
Scotla
nd
Northern
Irelan
d
North Ea
st
North W
est
Yorks
& The H
umber
East M
idlands
West M
idlands
East
London
South Ea
st
South W
est-
100,000
200,000
300,000
400,000
500,000
600,000
Mix-adjusted average house price for UK countries and English Regions, October 2015
Introduction to the UK Economy
Geoff Riley @tutor2ugeoff