UK Economy In Charts

Geoff Riley

Tutor2u

January 2009

The next set of GDP data will confirm recession

Annual percentage change in GDP at constant prices

The Economic Cycle - Growth in UK National Output

Source: UK Statistics Commission

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

Pe

rce

nt

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

BCC Confidence Survey hits rock bottom … for now

Survey on confidence over turnover going forward

British Chambers of Commerce Survey

Manufacturing ServicesSource: Reuters EcoWin

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

-40

-30

-20

-10

0

10

20

30

40

50

60

70

Ne

t b

ala

nce

-40

-30

-20

-10

0

10

20

30

40

50

60

70

A weaker global economy is hitting the export sector

British Chambers of Commerce quarterly trends survey, percentage balance of respondents

Balance of businesses reporting higher export orders

Services ManufacturingSource: Reuters EcoWin

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q300 01 02 03 04 05 06 07 08

-30

-20

-10

0

10

20

30

Ne

t b

ala

nce

-30

-20

-10

0

10

20

30

Manufacturing

Services

And the labour market is now suffering a severe ‘labour shake-out’A fall in the net balance implies worsening of employment intentions

BoE Regional Agents Survey - Employment Intentions

Source: Bank of England

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct05 06 07 08

-3

-2

-1

0

1

2

3

Ne

t b

ala

nce

-3

-2

-1

0

1

2

3

All Services

Manufacturing

Business Services

Consumer services

Note the sharp spike in short-term unemployment as recession deepens

Millions, seasonally adjusted, using Labour Force Survey data

UK Unemployment, By Duration

Source: Reuters EcoWin

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

mill

ion

s

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

Pe

rso

ns

(mill

ion

s)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

Unemployed for up to six months

Unemployed for over 12 months

Unemployed for over 24 months

And fewer hours for those still in a jobUnited Kingdom - Total actual weekly hours worked

Source: Reuters EcoWin

00 01 02 03 04 05 06 07 08

mill

ion

s

880

890

900

910

920

930

940

950

pe

r w

ee

k (m

illio

ns)

880

890

900

910

920

930

940

950

Labour as a derived demandTotal employment (bottom pane) and the annual growth of real GDP (top pane)

Economic Growth and Jobs for the UK Economy

Growth of Real GDP [ar 12 months] Employment - millions, All aged 16 and over, seasonally adjusted

Source: Reuters EcoWin

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

mill

ion

s

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

29.0

29.5

30.0

Pe

rso

n (

mill

ion

s)

25.025.526.026.527.027.528.028.529.029.530.0

-3

-2

-1

0

1

2

3

4

5

Pe

rce

nt

-3

-2

-1

0

1

2

3

4

5

The OECD is forecasting a large negative output gap going forwardActual GDP - Potential GDP, measured as a percentage of potential GDP source: OECD

United Kingdom, Output gap of the total economy

Source: OECD World Economic Outlook

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

-4

-3

-2

-1

0

1

2

3

4

5

Pe

rce

nta

ge

of

po

ten

tial G

DP

-4

-3

-2

-1

0

1

2

3

4

5

Jobs expectations have worsened – will this hit consumer spending?

Net percentage balance of people expecting a rise in unemployment over the next twelve months

UK Consumer Surveys - Unemployment Expectations

Source: Reuters EcoWin

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

-20

-10

0

10

20

30

40

50

60

70

Ne

t b

ala

nce

-20

-10

0

10

20

30

40

50

60

70

Manufacturing tends to suffer badly in downturns - no different in 2009?

Seasonally adjusted index of production, 2001 = 100

UK Manufacturing Index of Production

Source: Reuters EcoWin

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

mill

ion

s

70

75

80

85

90

95

100

105

110

Ind

ex

of

ou

tpu

t 2

00

1=

10

0 (

mill

ion

s)

70

75

80

85

90

95

100

105

110

And productivity is being hit by the recession ….why?

Annual % change in output per worker for the whole economy

UK Labour Productivity and the Economic Cycle

Source: Reuters EcoWin

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

-3

-2

-1

0

1

2

3

4

5

Pe

rce

nt

-3

-2

-1

0

1

2

3

4

5

Labour productivity

Real GDP

The OECD have downgraded estimates of UK trend growth

Source: OECD World Economic Outlook

United Kingdom - Potential GDP and Trend Growth

Source: OECD World Economic Outlook

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

tho

usa

nd

bill

ion

s

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

Re

al G

DP

(th

ou

san

d b

illio

ns)

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

Potential GDP

1.50

1.75

2.00

2.25

2.50

2.75

3.00

Pe

rce

nt

1.50

1.75

2.00

2.25

2.50

2.75

3.00

Trend Growth Rate

Partly because an economy in reverse will hit business capital spending

Quarterly value of capital spending at constant 2003 prices, £ billion and Regional Agents Surveys

Capital Investment and BoE Agents Surveys

Source: UK Statistics Commission

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q102 03 04 05 06 07 08

bill

ion

s

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0

£ (

bill

ion

s)

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0

Gross Capital Spending (In Real Terms)

-2

-1

0

1

2

3

4

Ne

t b

ala

nce

-2

-1

0

1

2

3

4

Investment intentions; manufacturing

Investment intentions; services

CPI deflation is a possibility in 2009 .. RPI may get there firstAnnual percentage change in the retail price index and CPI

Retail Price and Consumer Price Inflation in the UK

Source: UK Statistics Commission

97 98 99 00 01 02 03 04 05 06 07 08

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Pe

rce

nt

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Consumer price index

All items retail price index (RPI)

Will the deflation come from goods or services … or both?

Annual Percentage Change, source: ONS

Consumer Price Inflation for Goods and Services

Source: Reuters EcoWin

99 00 01 02 03 04 05 06 07 08

-3

-2

-1

0

1

2

3

4

5

6

Pe

rce

nt

-3

-2

-1

0

1

2

3

4

5

6

Goods and Services Together

Inflation in Services

Inflation in Goods

Maybe we were too fixated with headline CPI? Core inflation still 2%

Annual percentage change in consumer prices; base interest rate

United Kingdom Consumer Prices and Base Rates

Source: Reuters EcoWin

00 01 02 03 04 05 06 07 08

-1

0

1

2

3

4

5

6

Pe

rce

nt

-1

0

1

2

3

4

5

6

CPI excluding energy, food, alcohol and tobacco

Base Interest Rates

All items CPI

Policy rates are slashed to a 300 year low … but does the medicine work?

Base interest rates and consumer and business confidence indices

Interest Rates and Confidence

Policy Rates, Bank Rate DG ECFIN, Business Surveys, Manufacturing Sector, Confidence indicator, SA DG ECFIN, Consumer Surveys, Confidence indicator, SA

Source: Reuters EcoWin

Jan06

Mar May Jul Sep Nov Jan07

Mar May Jul Sep Nov Jan08

Mar May Jul Sep Nov Jan09

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

Ind

ex

-35-30-25-20-15-10-505

1015

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Pe

rce

nt

0.0

1.0

2.0

3.0

4.0

5.0

6.0

A race for the bottom?Policy rates, per cent

Official Policy Interest Rates

United Kingdom, Bank Rate United States, Fed Funds Target Rate, USD

China, Lending Rate, 0-1 Years, CNY

Source: IMF

00 01 02 03 04 05 06 07 08

0

1

2

3

4

5

6

7

8

Pe

rce

nt

0

1

2

3

4

5

6

7

8

China

USA

UK

Rate cuts hardly matter when the supply of credit has dried up

Monthly - loans for house purchase

Number of New Mortgage Loans

Source: Reuters EcoWin

02 03 04 05 06 07 08

30000

40000

50000

60000

70000

80000

90000

100000

110000

120000

130000

140000

150000

Nu

mb

er

of

30000

40000

50000

60000

70000

80000

90000

100000

110000

120000

130000

140000

150000

And housing deflation continues apaceAll properties, average, £s

UK House Prices (Nationwide Index)

Source: Reuters EcoWin

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

25000

50000

75000

100000

125000

150000

175000

200000

Ave

rag

e p

rop

ert

y p

rice

s £

s

25000

50000

75000

100000

125000

150000

175000

200000

LIBOR is now closer to the base ratePercentage, since May 1997 base rates have been set by the Bank of England

Trying to Stem the Credit Crunch

Source: Bank of England

Nov07

Dec Jan08

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan09

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Pe

rce

nt

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Bank of England Base Rate

London Interbank 3-Month Interest Rate

But for those on unsecured credit 1.5% base rates has little meaning

Per cent, source: Bank of England

The Cost of Borrowing

Source: Bank of England

Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep04 05 06 07 08

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Pe

rce

nt

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Mortgage rates

Base Interest Rates (set by BoE)

Overdrafts

Credit cards

Keynesian deficit spending to the rescue? 50% of GDP is high!

Measured as a percentage of national income

UK Government Spending and Taxation

Total tax revenues as a share of GDP Government spending as a share of GDPSource: OECD World Economic Outlook

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

36

37

38

39

40

41

42

43

44

45

46

47

48

49

Pe

r ce

nt

of

GD

P

36

37

38

39

40

41

42

43

44

45

46

47

48

49

Total Tax Revenue

Government Spending

What lies behind the sharp fall in bond yields?

Daily yields, per cent

UK Government Bond Yields

10 Year 2 Year 20 YearSource: Reuters EcoWin

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Pe

rce

nt

1

2

3

4

5

6

7

8

9

10

11

12

13

14 10 Year 3.1972 Year 1.59320 Year 4.116

How high will the government debt mountain reach?

£ billion at current prices, monthly data

UK Government Net Debt

Source: Reuters EcoWin

90 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

bill

ion

s

150

200

250

300

350

400

450

500

550

600

650

GB

P (

bill

ion

s)

150

200

250

300

350

400

450

500

550

600

650

Will the new frugality take hold?Two factors that influence the rate at which households save their disposable income

Savings, Interest Rates and Unemployment

Source: UK Statistics Commission

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Pe

rce

nt

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Interest rates

Savings Ratio

Unemployment

Household savings ratio (% of disposable income) Base Interest Rate Unemployment (Claimant count, seasonally adjusted)

For many in negative equity – saving will have to become a habit again

Savings ratio measured as a percentage of disposable income, quarterly data, seasonally adjust

The Savings Ratio and UK House Price Inflation

Source: Reuters EcoWin

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

An

nu

al %

ch

an

ge

in h

ou

se p

rice

s

-15

-10

-5

0

5

10

15

20

25

Pe

r ce

nt

of

dis

po

sab

le in

com

e

-15

-10

-5

0

5

10

15

20

25

Savings Ratio (Left hand scale)

House price inflation (right hand scale)

Recession yes – but little sign of an improvement in the trade deficit …yet

Seasonally adjusted, quarterly trade balance, £ billion

UK Balance of Trade in Goods and Services

Source: Reuters EcoWin

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

bill

ion

s

-25

-20

-15

-10

-5

0

5

10

15

Ste

rlin

g (

£)

(bill

ion

s)

-25

-20

-15

-10

-5

0

5

10

15

Trade in services

Trade in goods

Sterling’s fall is a help but global demand is weak

£ billion, seasonally adjusted, monthly balance and sterling exchange rate index

UK Monthly Trade Balance in Goods and Sterling Index

Sterling exchange rate index Balance of Trade in Goods £bn, monthlySource: Reuters EcoWin

02 03 04 05 06 07 08

bill

ion

s

-9

-8

-7

-6

-5

-4

-3

-2

£ (

bill

ion

s)

-9

-8

-7

-6

-5

-4

-3

-2

90

100

110

120

130

140

Ex

Ra

te I

nd

ex

20

00

=1

00

90

100

110

120

130

140

A floor for sterling-dollar for the moment?

US dollars per £1, daily closing exchange rate

Dollar-Sterling Exchange Rate

Source: Reuters EcoWin

Jan08

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan09

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

GB

P/U

SD

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

And talk of Euro parity was over-doneValue of one Euro, daily closing exchange rate, policy interest rates (%)

Euro - Sterling Exchange Rate and Interest Rates

Source: Reuters EcoWin

99 00 01 02 03 04 05 06 07 08 09

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Pe

nce

pe

r E

uro

1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Euro Zone Interest Rates

UK Interest Rates

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

Pe

nce

pe

r E

uro

1

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

The end of the great stability?Inflation, jobs and growth

Key Macroeconomic Objectives for the UK

Source: Reuters EcoWin

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

Pe

rce

nt

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

Inflation

GDP growth

Unemployment

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