UK Economy Introductionstorage.googleapis.com/wzukusers/user-17577826... · 88 90 92 94 96 98 100...
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Transcript of UK Economy Introductionstorage.googleapis.com/wzukusers/user-17577826... · 88 90 92 94 96 98 100...
These are the key macroeconomic policy objectives
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 debt
Improved economic well-‐being
Better regional balance in the UK economy
Improved access to & quality of public
services
Improved global competitiveness
Environmental sustainability
2015-‐16 Global Competitiveness Index (UK Rankings)
Indicator UK ranking out of 144countries
Overall competitiveness 10th /144
Institutions 12th /144 (legal 6th)
Infrastructure 9th /144 (roads 29th)
Macroeconomic environment
108th /144 (Government debt 123rd )
Labour market efficiency
5th /144(Quality of Maths & Science 43rd)
Technological readiness
3rd /144(Mobile broadband 16th)
Highlighted problems for businesses
• Access to finance for business
• Skills gaps in the workforce
UK Economy Overview (Source: March 2016 Budget)
% change unless stated 2014 Actual 2015 Actual 2016 (Forecast)Output at constant market pricesGross domestic product (GDP) 2.9 2.2 2.0
Expenditure components of real GDPHousehold consumption 2.5 2.9 2.4General government consumption 2.5 1.7 0.2Business investment 4.7 4.7 2.6General government investment 5.8 2.2 0.2
Net trade -‐0.4 -‐0.5 -‐0.4
InflationConsumerprice index 1.5 0.0 0.7Labour marketEmployment (millions) 30.7 31.2 31.6Average earnings 1.4 2.3 2.6LFS unemployment (rate, per cent) 6.2 5.4 5.0
CPI Inflation in the UK over the last 10 Years
-‐1
0
1
2
3
4
5
6
Mar-‐06
Aug-‐06
Jan-‐07
Jun-‐07
Nov-‐07
Apr-‐08
Sep-‐08
Feb-‐09
Jul-‐0
9
Dec-‐09
May-‐10
Oct-‐10
Mar-‐11
Aug-‐11
Jan-‐12
Jun-‐12
Nov-‐12
Apr-‐13
Sep-‐13
Feb-‐14
Jul-‐1
4
Dec-‐14
May-‐15
Oct-‐15
Mar-‐16
Annual rate of consumer price inflation in the UK
Consumer price inflation is the rate at which the prices of goods and services bought by households rise or fall. It is estimated by using price indices
Source: Office for National Statistics
Source: ONS
The UK Economic Cycle in Recent Years
-‐2.5
-‐2
-‐1.5
-‐1
-‐0.5
0
0.5
1
1.5
2
350
370
390
410
430
450
470
Q1 20
03
Q3 20
03
Q1 20
04
Q3 20
04
Q1 20
05
Q3 20
05
Q1 20
06
Q3 20
06
Q1 20
07
Q3 20
07
Q1 20
08
Q3 20
08
Q1 20
09
Q3 20
09
Q1 20
10
Q3 20
10
Q1 20
11
Q3 20
11
Q1 20
12
Q3 20
12
Q1 20
13
Q3 20
13
Q1 20
14
Q3 20
14
Q1 20
15
Q3 20
15
Real GDP for the UK Economy
Growth, seasonally adjusted (%) Levels, seasonally adjusted (£ billion)
£ billionPer cent
“GDP in the UK grew steadily during the 2000s until a financial market shock affected UK and global economic growth in 2008 and 2009.” ONS
Source: ONS
Quarter on Quarter Growth in Real GDP for the UK
Per cent
-‐2.5
-‐2
-‐1.5
-‐1
-‐0.5
0
0.5
1
1.5
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
2008 Q3
2008 Q4
2009 Q1
2009 Q2
2009 Q3
2009 Q4
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
2015 Q1
2015 Q2
2015 Q3
2015 Q4
UK GDP growth, quarter on quarter
88
90
92
94
96
98
100
102
2008 Q1
2008 Q3
2009 Q1
2009 Q3
2010 Q1
2010 Q3
2011 Q1
2011 Q3
2012 Q1
2012 Q3
2013 Q1
2013 Q3
2014 Q1
2014 Q3
2015 Q1
2015 Q3
Gross Domestic Product (GDP) per head, Q1 2008 = 100Source: ONS
Index of Real GDP Per Capita for the UK
Gross domestic product (GDP) per head adjusts GDP for the size of the population. At the end of 2015, real GDP per head was only 1% higher than at the start of 2008. It has taken a long time for average living standards to recover from the effects of the recession and subsequent slow economic recovery.
0
5,000
10,000
15,000
20,000
25,000
30,000
0
1
2
3
4
5
6
7
Real Median Disposable Income and Income Inequality in the UK
Real median equivalised disposable income (RHS) S80/S20 Ratio (LHS) Source: ONS
Median Disposable Income and Inequality
Income inequality using the S80/S20 ratio seems to have gradually fallen since 2000 but real median disposable income in the UK has stagnated since 2007
S80/S20 ratio £s at constant 2014 prices
S80/S20 ratio of the total disposable income of the richest fifth of the population to that of the poorest fifth of the population
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.
-‐6.0
-‐5.0
-‐4.0
-‐3.0
-‐2.0
-‐1.0
0.0
1.0
2.0
3.0
4.0
2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3
November 2015 central estimate
Highest forecast
Lowest forecast
Negative output gap –i.e. the economy has margin of spare capacity
Positive output gap – i.e. where actual GDP is above potential GDP – a sign of excess aggregate demand
Index of UK Production by main Economic Sector
80
85
90
95
100
105
110
115
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Index of Output at Constant Prices, 2008 Quarter 1 = 100
Manufacturing Production Construction Services
Competitiveness Issue for UK: The Productivity Gap
Labour productivity can be measured by GDP per hour worked and per worker, and growth in GDP per hour worked. This chart shows GDP per worker for G7 countries in 2015
86.0
100.0106.0 111.0 114.0 115.0 119.0
138.0
0
20
40
60
80
100
120
140
160
Japan UK(=100) Canada Germany Italy France G7 exc. UK US
GDP per worker employed
UK Productivity Growth has disappointed since 2007
Real output per person employed in the UK and G7 (excluding the UK)
80.0
85.0
90.0
95.0
100.0
105.0
110.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Index of Constant price GDP per hour worked, 2007 = 100
UK G7 exc UK
Why does the UK economy lag on productivity?
Low rate of new capital investment in the UK
Banking crisis affecting lending to businesses
Possible slowing rates of process innovation
Persistent and deep skills shortages in key
industries
Relatively low levels of market competition
Low aggregate demand & high spare capacity –under-‐utilizing resources
Real Household Disposable Income (Per Quarter)
3400
3600
3800
4000
4200
4400
4600
2000 Q1
2000 Q3
2001 Q1
2001 Q3
2002 Q1
2002 Q3
2003 Q1
2003 Q3
2004 Q1
2004 Q3
2005 Q1
2005 Q3
2006 Q1
2006 Q3
2007 Q1
2007 Q3
2008 Q1
2008 Q3
2009 Q1
2009 Q3
2010 Q1
2010 Q3
2011 Q1
2011 Q3
2012 Q1
2012 Q3
2013 Q1
2013 Q3
2014 Q1
2014 Q3
2015 Q1
2015 Q3
Real household disposable income per head (£s)
Between 2000 and 2007, there was a significant increase in real disposable income – helping to fuel a strong economic boom
Since 2009, real household disposable incomes have been flat – affecting the living standards of millions of people
Household Saving Ratio for the UK Economy
-‐4.0
-‐2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.02000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Household final consumption
Savings 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
%
Average UK House Prices by Region
£s
-‐
100,000
200,000
300,000
400,000
500,000
600,000
UK England Wales Scotland Northern Ireland
North East
North West
Yorks & The
Humber
East Midlands
West Midlands
East London South East
South West
Mix-‐adjusted average house price for UK countries and English Regions, October 2015
UK Unemployment Rate (Labour Force Survey)
0
2
4
6
8
10
12
14
Jan-‐Mar 1971
Apr-‐Jun 1972
Jul-‐Sep 1973
Oct-‐D
ec 19
74Jan-‐Mar 1976
Apr-‐Jun 1977
Jul-‐Sep 1978
Oct-‐D
ec 19
79Jan-‐Mar 1981
Apr-‐Jun 1982
Jul-‐Sep 1983
Oct-‐D
ec 19
84Jan-‐Mar 1986
Apr-‐Jun 1987
Jul-‐Sep 1988
Oct-‐D
ec 19
89Jan-‐Mar 1991
Apr-‐Jun 1992
Jul-‐Sep 1993
Oct-‐D
ec 19
94Jan-‐Mar 1996
Apr-‐Jun 1997
Jul-‐Sep 1998
Oct-‐D
ec 19
99Jan-‐Mar 2001
Apr-‐Jun 2002
Jul-‐Sep 2003
Oct-‐D
ec 20
04Jan-‐Mar 2006
Apr-‐Jun 2007
Jul-‐Sep 2008
Oct-‐D
ec 20
09Jan-‐Mar 2011
Apr-‐Jun 2012
Jul-‐Sep 2013
Oct-‐D
ec 20
14
Unemployment rate (per cent of the labour force)
Unemployment measures people without a job who have been actively seeking workwithin the last 4 weeks and are available to start work within the next 2 weeks.
Duration of LFS Unemployment in the UK economy
500
1,000
1,500
2,000
2,500
3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Over 24 months
12-‐24 months
6-‐12 months
Less than 6 months
Total unemployment, seasonally adjusted In the last few years there has been a welcome fall in the level of unemployment
One of the big challenges for the UK is to make more progress in reducing long-‐term structural unemployment
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
100
200
300
400
500
600
700
800
900
16-‐17 18-‐24 25-‐34 35-‐49 50-‐64 65+
2011
2012
2013
2014
2015 Q1-‐Q3
Total unemployment, seasonally adjusted
The Rise of Zero Hours Contracts in the UK Economy
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Zero Hours Contracts do not guarantee a minimum number of working hours each week
In employment on a zero hours contract (thousands)
Percentage of people in employment on a zero hours contract
• People on “zero-‐hours contracts” are more likely to be young, part time, women, or in full-‐time education when compared with other people in employment.
• On average, someone on a “zero-‐hours contract” usually works 26 hours a week
Total (thousands)
% of people in work
Economic Inactivity in the UK Labour Market
People not in employment who have not been seeking work within the last 4 weeks and/or are unable to start work within the next 2 weeks�
8,400
8,600
8,800
9,000
9,200
9,400
9,600
Jan-‐Mar 2006
May-‐Ju
l 2006
Sep-‐No
v 2006
Jan-‐Mar 2007
May-‐Ju
l 2007
Sep-‐No
v 2007
Jan-‐Mar 2008
May-‐Ju
l 2008
Sep-‐No
v 2008
Jan-‐Mar 2009
May-‐Ju
l 2009
Sep-‐No
v 2009
Jan-‐Mar 2010
May-‐Ju
l 2010
Sep-‐No
v 2010
Jan-‐Mar 2011
May-‐Ju
l 2011
Sep-‐No
v 2011
Jan-‐Mar 2012
May-‐Ju
l 2012
Sep-‐No
v 2012
Jan-‐Mar 2013
May-‐Ju
l 2013
Sep-‐No
v 2013
Jan-‐Mar 2014
May-‐Ju
l 2014
Sep-‐No
v 2014
Jan-‐Mar 2015
May-‐Ju
l 2015
Sep-‐No
v 2015
Total economically inactive aged 16-‐64 (thousands)
Reasons for Economic Inactivity in the UK
People not in employment who have not been seeking work within the last 4 weeks and/or are unable to start work within the next 2 weeks
0
500
1,000
1,500
2,000
2,500
Reasons for Inactivity (3 months from Nov 2015-‐Jan 2016)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Does not want job (thousands)
Wants a job (thousands)
Of the total who are economically inactive000’s000’s
UK Trade Balance in Goods and Services (% of GDP)
-‐8
-‐6
-‐4
-‐2
0
2
4
6
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Trade Balances for Goods and Services (% of GDP)
Goods balance Services balance Balance in goods and services
UK Trade and Current Account Balance (% of GDP)
The UK’s external trade position has worsened considerably in the last few years. Since 2013 the quarterly current account deficit has average 5% of our GDP
-‐7.0
-‐6.0
-‐5.0
-‐4.0
-‐3.0
-‐2.0
-‐1.0
0.02009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
Trade balance (%, GDP)
Current account balance (% GDP)
Components of Current Account Balance (% of GDP)
-‐1.1 -‐1.3 -‐1.3 -‐1.3 -‐1.5 -‐1.4 -‐1.3
-‐2.3-‐2.8
-‐1.6 -‐2 -‐2 -‐1.9 -‐2
-‐1.2
-‐1.8
-‐2-‐2 -‐2.1 -‐1.9 -‐1.7
1.63.1 3.3
2.1 1.60.7
-‐0.2
-‐8
-‐6
-‐4
-‐2
0
2
4
2009 2010 2011 2012 2013 2014 2015
Components of the UK Current Account (% of GDP), annual
Secondary income balance Trade balance Primary income balance (excl FDI) FDI balance
Fluctuations in the UK Exchange Rate Index
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
ERI
€ : £
$ : £
The exchange rate index (ERI) is a trade-‐weighted measure of sterling against a basket of currencies – weighted by the share of UK trade with each country
Base Interest Rates and Mortgage Rate in the UK
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Effective mortgage interest rate Base rate
UK Government Borrowing and Debt
-‐4
-‐2
0
2
4
6
8
10
12
14
16
-‐50
-‐25
0
25
50
75
100
125
150
175
200
1993/94 1995/96 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14 2015/16 ytd
Net Borrowing(% GDP)
Net Borrowing(£ billion)
Full financial year
Year-‐to-‐date
Net Borrowing as a % of GDP
Royal Mail pension plan liabilities transferred to the public sector
