Introduction to the UK Economy

Transcription

1 Introduction to the UK Economy

2 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

3 Additional objectives of macroeconomic policy Balancing the budget and reducing the national debt Improving economic well-being Better regional balance in the UK economy Improved access to public services Improved competitiveness Environmental sustainability

4 Actual and Forecast Economic Indicators for the UK *Data for 15 and 16 are forecasts published for the July 15 Budget Economic Indicator 14 15* 16* Gross domestic product (GDP) % change GDP levels (14=100) Output gap (per cent of potential GDP) Expenditure components of GDP Household consumption (% change) General government consumption (% change) Business investment (% change) General government investment (% change) Net trade : (exports - imports) (per cent of GDP) Inflation Consumer price index (annual % change) The Labour Market Employment (millions) Average earnings (annual % change) Labour Force Survey unemployment (% rate) Claimant count unemployment (millions)

5 Basic Background Information for the UK Economy Recent Macroeconomic Data Latest annualised GDP Growth (%) GDP per capita (US $, PPP standard) 2.6% $35,013 Inflation rate (%) 0.1% Unemployment rate (% of labour force) Fiscal balance (% of GDP) Government debt (% of GDP) Yield on 10-Yr Govt Bonds (%) Investment (% of GDP) in % -5.3% 91% 1.5% 15% Background Information Currency unit Exchange rate system Current policy interest rate Trade surplus or deficit? Current account balance (% of GDP) Main corporate tax rate (per cent) Global competitiveness ranking for 14 Economic Freedom Index Ranking Corruption Perception Ranking Floating 0.5% Deficit -4.4% % 9 th 14 th 14 th 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 Rank for Innovation and sophistication Gini coefficient (Latest published estimate) 5 th 8 th 36.5

6 The UK Economic Cycle in Recent Years 4.0% Source: ONS GDP growth rate compared to previous year 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% * 17* 18* 19* * The chart shows real GDP growth for the UK from Data for 15 onwards shows forecast growth using figures from the International Monetary Fund (IMF)

7 Household Saving Ratio for the UK Economy % The chart shows the annual growth in household consumption of goods and services along with the household saving ratio (% of disposable income) Household final consumption Savings ratio The saving ratio in the UK has been falling since 10 mainly due to a period of relatively strong consumer spending that has outpaced the growth of real disposable income

8 Capital Investment as a share of UK GDP In real terms and expressed as a share of GDP, the level of capital investment spending in the UK has remained stubbornly low. Nominal Real Q Q Q Q Q Q Q3 01 Q3 04 Q3 07 Q3 10 Q3 13 Q3 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.

9 Key UK Labour Market Data in Recent Years Year LabourForce Survey Unemployment Level LabourForce Survey Unemployment Rate Total Employment Employment Rate Thousands Per cent of the labour force Thousands Per cent of population of working age 11 2, , , , , , , , (April) 1, , Source: HM-Treasury Databank

10 Unemployment in the UK Economy over Long Run Labour Force Survey Unemployment Rate (%) month change Unemployment Rate The unemployment rate has varied over the last 40 years. Our chart shows the peaks over this period the peak rate has been falling.

11 Unemployment by Age in the UK Economy Total unemployment, seasonally adjusted Q1-Q The decline in unemployment since 11 has been across all age groups, but has been greater for the 18 to 49 age brackets during this period

12 Duration of LFS Unemployment in the UK economy Total unemployment, seasonally adjusted 3,000 2,500 2,000 1,500 1,000 Over 24 months months 6-12 months Less than 6 months

13 Inflation Rate in the UK Economy in Recent Years Inflation rate 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% A lower inflation rate means prices rise more slowly this is known as disinflation CPI inflation target = 2% Source: Office for National Statistics 0.0%

14 CPI Inflation in the UK over the last Years 7 Annual rate of change of consumer prices (%) Source: Office for National Statistics CPI all items CPI goods CPI services The inflation rate for goods such as clothing and computing equipment has been, on average, lower than for service such as insurance and education

15 CPI and Core Inflation in the UK In Recent Years Annual rate of change of consumer prices (%) Source: Office for National Statistics CPI All items Core CPI 0-1 Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 CPI All Items: Percentage change over 12 months Core CPI: Excludes energy, food, alcohol & tobacco Mar-13 Oct-13 May-14 Dec-14 Jul-15

16 UK Balance of Trade in Goods and Services billion, seasonally adjusted Balance of Trade in Goods Balance of Total UK Trade Balance of Trade in Services 13 Nov 14 Feb 14 May 14 Aug 14 Nov 15 Feb 15 May 15 Aug 15 Nov Britain runs a strong surplus in services but a large and persistent deficit in goods

17 UK Trade Balances in Goods and Services with the EU Annual Trade Balance ( billion) Source: Office for National Statistics Rest of the EU Spain Netherlands Ireland Germany France 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?

18 Base Interest Rates and Mortgage Rate in the UK 8.0 Effective mortgage interest rate Base rate

19 Fluctuations in the UK Exchange Rate Index ERI : $ :

20 Key Summary of UK Government Finances Per cent of GDP Outturn Forecast Revenue and spending Tax revenues (% of GDP) Government spending (% of GDP) Size of the budget deficit (% of GDP) Government borrowing Cyclically adjusted current budget deficit (% of GDP) The Size of the National Debt: Public sector net debt (% of GDP) Source: OBR, November 15

21 The Estimated Output Gap for the UK Economy Positive output gap i.e. where actual GDP is above potential GDP a sign of possible excess aggregate demand November 15 central estimate Highest forecast Lowest forecast Q3 09 Q3 10 Q3 11 Q3 12 Q3 13 Q3 14 Q3 15 Q3 Negative output gap i.e. the economy has large margin of spare capacity The chart shows the estimated output gap for the UK economy. Note that there is a range of estimates from different economic forecasters.

22 Average UK House Prices by Region s 600,000 Mix-adjusted average house price for UK countries and English Regions, October , , ,000 0, ,000 - UK England Wales Scotland Northern Ireland North East North West Yorks & The Humber East Midlands West Midlands East London South East South West

23 Geoff Introduction to the UK Economy