This presentation outlines the key developments in the UK Economy. Updated September 2013.

1. Developments in the UK
Economy
Developments in the UK
Economy
Geoff Riley – Autumn 2013

2. Growth and inflation in the UK Economy
Real GDP growth (%) [ar 4 quarters] Consumer Price Inflation (%)
Source: UK Statistics Agency
Percent
Percent
Consumer price inflation
Real GDP growth

3. Real GDP for the UKQuarterly value of real GDP (at constant prices, value added measure)
Source: Office of National Statistics
£(billions)
£(billions)

4. Growth and the Output GapTop pane: Real GDP Bottom Pane: Output Gap measured as a % of potential GDP source: OECD
UK Real GDP and Output Gap
Source: Reuters EcoWin
05 06 07 08 09 10 11 12 13 14
-5
-4
-3
-2
-1
0
1
2
3
4
PercentageofpotentialGDP
-5
-4
-3
-2
-1
0
1
2
3
4
thousandbillions
1.350
1.375
1.400
1.425
1.450
1.475
1.500
atconstantprices(thousandbillions)
1.350
1.375
1.400
1.425
1.450
1.475
1.500
PLOG ‐ a persistent large
output gap

5. Output gap and unemploymentOutput Gap (% of potential GDP), Unemployment - Labour Force Survey measure
The Output Gap and Unemployment in the UK
Source: Reuters EcoWin
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
Percent
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
Unemployment rate (LFS measure)
Output gap (% of potential GDP)

6. Aggregate Demand (AD)£bn per year at constant 2003 prices
The Components of Aggregate Demand
Consumer spending
Capital investment
Government consumption
Imports
Exports
Source: UK Statistics Commission
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
thousandbillions
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
GBP(thousandbillions)
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0

7. Trying to achieve macro stability
Source: Reuters EcoWin
Percent
Percent
CPI Inflation
GDP growth
Unemployment Rate

8. Another look at the cycleAnnual percentage change in real GDP measured at constant prices
Growth in UK Real National Output
Source: UK Statistics Commission
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Percent
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
Percent
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
New normal growth rate
likely to be slow .............

9. Tracking output by sectorIndex of Output (Value Added) at Constant Prices, Seasonally Adjusted, Index, 2009=100
Manufacturing Construction UK Real GDP Finance and Insurance
Source: Office for National Statistics
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Indexofoutput2009=100
70
75
80
85
90
95
100
105
110
115
Indexofoutput2009=100
70
75
80
85
90
95
100
105
110
115

10. The employment rate remains below peak
levels
United Kingdom, Employment, Rate, Aged 16-64, seasonally adjusted
Employment Rate in the UK Economy
Source: Reuters EcoWin
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
68.0
68.5
69.0
69.5
70.0
70.5
71.0
71.5
72.0
72.5
73.0
73.5
Percent
68.0
68.5
69.0
69.5
70.0
70.5
71.0
71.5
72.0
72.5
73.0
73.5

11. Trend growth is falling – why?
Source: OECD World Economic Outlook
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
thousandbillions
RealGDP£(thousandbillions)
Potential GDP
Percentperyear
Estimated UK Trend Growth Rate Recession may have inflicted
damage on trend growth

12. The output gap is negativePercentage
Percent
Percent
Output Gap
CPI InflationUK Policy Rates
Plenty of spare capacity
No change in policy base
rates for nearly 4 years

13. % annual change in household spending and GDP at constant 2000 prices
Source: Office of National Statistics
Annual%change
Annual%change
Real GDP
Consumer spending
Household demand is main
short term driver of AD

14. Average UK House PricesAll properties, average, £s
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11 12 13
70000
80000
90000
100000
110000
120000
130000
140000
150000
160000
170000
180000
190000
Averagepropertyprices£s
70000
80000
90000
100000
110000
120000
130000
140000
150000
160000
170000
180000
190000

15. Housing affordability
Source: HBoS Housing Research
Ratioofhousepricestoaverageearnings

16. Construction and JobsTop pane: Construction sector employment Lower Pane: Housing Starts
Construction employment Housing Starts per quarter, England, seasonally adjusted
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11 12 13
10000
20000
30000
40000
50000
Newhousesstarted
10000
20000
30000
40000
50000
millions
1.85
1.95
2.05
2.15
2.25
2.35
Employment(millions)
1.85
1.95
2.05
2.15
2.25
2.35

17. Consumer Borrowing Secured on Property£ billion per month, seasonally adjusted
Source: Reuters EcoWin
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
billions
-1
0
1
2
3
4
5
6
7
8
9
10
11
GBP(billions)
-1
0
1
2
3
4
5
6
7
8
9
10
11

18. Real House PricesReal, house prices, Percentage change from previous year
Asset Price Deflation - Real Property Prices in Selected Countries
United Kingdom Spain Greece Ireland Germany
Source: OECD World Economic Outlook
02 03 04 05 06 07 08 09 10 11 12
Percent
-15
-10
-5
0
5
10
15
20
Percent
-15
-10
-5
0
5
10
15
20

19. Consumer confidence remains weakExpectations over next 12 months, % balance of optimists over pessimists
Source: Reuters EcoWin
PercentageBalanceofrespondents
State of the economy
Likely to make major purchases
People's Own Financial Situation

20. State of the EconomyPer cent of respondents
Survey about the State of the UK Economy
UK Current Economic Situation, Bad
UK Current Economic Situation, Don't know
UK Current Economic Situation, Good
UK Current Economic Situation, Normal
Source: Reuters EcoWin
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan
06 07 08 09 10 11 12
0
10
20
30
40
50
60
70
80
90
Percent
0
10
20
30
40
50
60
70
80
90

21. Low wage growth and the squeeze on real
incomes continues
Annual growth of regular weekly pay, consumer price inflation (%)
Annual Change in Weekly Regular Pay and CPI Inflation
Average Weekly Pay, 3 month average, seasonally adjusted Consumer Price Index (All Items)
Source: Office of National Statistics
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May
07 08 09 10 11 12 13
Percent
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Percent
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Consumer Price Inflation (%)
Regular Weekly Pay (% annual change)

22. Spending on consumer durablesReal spending at constant prices, seasonally adjusted, £ billion per quarter
Source: Reuters EcoWin
billions
£satconstant2002prices(billions)

23. Total Real Capital Investment Spending UK
United Kingdom, Short-term interest rate
Source: UK Statistics Commission
percent
billions
£(billions)

24. Jobs and prices
Source: Reuters EcoWin
Percent
UK Unemployment Rate (Labour Force Survey, % of labour force)
Inflation Rate (CPI, annual % change)

25. Oil prices affect AD and SRAS
Source: Reuters EcoWin
USdollarsperbarrel
The external
environment
matters a lot
for the UK
economy
World oil price seems to
have stabilised around
$100 a barrel................

26. Annual % change in UK GDP at constant prices,% of labour force unemployed
Source: UK Statistics Commission
Percentofthelabourforce
PercentagegrowthofGDP
Real GDP (Annual % Change) LHS
Unemployment (% of the labour force) RHS
Deep recession (> 6% fall in
output) and weak recovery
(GDP grew only 0.7% in 2011)
Economy needs
to grow at least
2% for
unemployment
to start falling

27. Unfilled job vacancies
Source: Reuters EcoWin
Numberofvacancies
Numberofvacancies

28. Monthly level of redundanciesMonthly total
Redundancies in the UK Economy
Source: Reuters EcoWin
04 05 06 07 08 09 10 11 12 13
100000
125000
150000
175000
200000
225000
250000
275000
300000
325000
redundancies
100000
125000
150000
175000
200000
225000
250000
275000
300000
325000

29. Regional Unemployment RatesA selection of regional unemployment rates, per cent of the labour force, LFS measure
London
North East
Northern Ireland
Scotland
South East
Yorks and Humber
UK
Source: UK Labour Market Statistics
05 06 07 08 09 10 11 12
3
4
5
6
7
8
9
10
11
12
GBP
3
4
5
6
7
8
9
10
11
12

30. Employment in two key industriesQuarterly level of employment, seasonally adjusted, million
Employment in UK Manufacturing and Construction Industries
Construction Industry Employment Manufacturing Industry Employment
Source: UK Office of National Statistics
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Personsemployed(millions)
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
Personsemployed(millions)
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
Manufacturing
Construction

31. Duration of unemployment
Source: Reuters EcoWin
millions
Persons(millions)
Unemployed for up to six months
Unemployed for over 12 months
Unemployed for over 24 months

32. Greece
Ireland
Italy
Spain
Germany
United Kingdom
South Korea
United States
Source: OECD World Economic Outlook
Percentofthelabourforce
Youth unemployment in
Greece and Spain is over
50% of the labour force

33. Long term youth unemploymentThousands, people out of work for at least a year
Long Term Unemployment for people Aged 18-24
Source: Reuters EcoWin
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
25000
50000
75000
100000
125000
150000
175000
200000
225000
250000
275000
25000
50000
75000
100000
125000
150000
175000
200000
225000
250000
275000

34. Unemployment and Trend Growth (UK)Source: OECD World Economic Outlook
Source: OECD World Economic Outlook
04 05 06 07 08 09 10 11 12 13 14
Percent
0
1
2
3
4
5
6
7
8
9
Percent
0
1
2
3
4
5
6
7
8
9
Unemployment rate (%)
Estimated UK Trend Growth Rate

35. Euro Zone Jobs Crisis
Unemployment Employment Labour force
Source: OECD World Economic Outlook
02 03 04 05 06 07 08 09 10 11 12 13 14
millions
135.0
137.5
140.0
142.5
145.0
147.5
150.0
152.5
155.0
157.5
160.0
Person(millions)
135.0
137.5
140.0
142.5
145.0
147.5
150.0
152.5
155.0
157.5
160.0
Total Employment
Size of Labour Force
millions
11
12
13
14
15
16
17
18
19
20
Person(millions)
11
12
13
14
15
16
17
18
19
20
Total Unemployment in the Euro Area

36. Base Interest RatesPer cent
Source: Reuters EcoWin
Percent
Percent

37. Forward Guidance Arrives!Percentage
Forward Guidance: Base Interest Rates and UK Unemployment
05 06 07 08 09 10 11 12 13
Percent
0
1
2
3
4
5
6
7
8
9
Percent
0
1
2
3
4
5
6
7
8
9
Unemployment rate
UK policy interest rates

38. The Cost of Credit
Personal Lending Rates, Bank and Building Society, Average Credit Card Rate
Average Overdraft Interest Rate
Bank Rate (Policy Rate) Set by Bank of England MPC
Fixed Mortgage Interest Rate, average
Source: Bank of England
07 08 09 10 11 12 13
Percentinterestonloans
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Percentinterestonloans
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 Bank of England)
Overdrafts
Credit cards Official interest rates are about as low as
they can go and government bond yields
are at record lows. Yet regular borrowers
are paying well above these rates

39. Bank lending
M4 lending, Chg Y/Y M4 Lending, 3 month M4 Lending, 6 month
Source: Reuters EcoWin
Percent
QE started in March 2009

40. Mortgage approvalsMonthly figure, seasonally adjusted
Number of loans approved for UK house purchase
Source: Council for Mortgage Lenders
00 01 02 03 04 05 06 07 08 09 10 11 12 13
0
20000
40000
60000
80000
100000
120000
140000
Numberof
0
20000
40000
60000
80000
100000
120000
140000

41. Sterling exchange rate index
Source: Reuters EcoWin
Tradeweightedindex
Tradeweightedindex
Fall in the index shows a depreciation of sterling against a basket of major currencies

42. Top pane: Effective exchange rate index, Bottom pane: Trade balance in goods and services
Effective Exchange Rate Index, annual average value
Trade balance in Goods & Services, annual balance £bn
Source: IMF, UK Balance of Trade Statistics
90 92 94 96 98 00 02 04 06 08 10 12
billions
-40
-30
-20
-10
0
10
Tradebalance(billions)
-40
-30
-20
-10
0
10
70
80
90
100
110
ExchangeRateIndex
70
80
90
100
110
Trade balance has been
negative since 1997, mainly as
the result of a chronic deficit
in goods trade
Depreciation of
sterling from 2007
to 2009

43. Current Account
Services
Net Investment Income
Transfers Balance
Goods
Source: Statistics Commission BoP Statistics
£(billions)
£(billions)
Trade in Goods Current account
Transfers
Investment income
Trade in Services
High trade surplus in services
Trade deficit in goods now over £100bn

44. Seasonally adjusted, quarterly trade balance, £ billion
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11 12 13
billions
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
Sterling(£)(billions)
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
Trade in services
Trade in goods
Key services:
Business services
Financial services
Transport and tourism
Education and Health
Creative industries
Research and development
Key goods:
Manufactured goods
Oil / gas / minerals
Food and drink
Components
Services
UK is the largest service
exporter in the EU

45. UK Balance of Trade in OilTrade Balance £bn and Brent Crude ($s per barrel)
UK Trade in Oil and Brent Crude Oil Price
Source: Reuters EcoWin
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
10
20
30
40
50
60
70
80
90
100
110
120
USD/Barrel
10
20
30
40
50
60
70
80
90
100
110
120
Annual average price for Brent crude oil
billions
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
GBP(billions)
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
Annual UK balance of trade in oil

46. Trade Balance in Gas£ billion - annual value of exports and imports at constant 2006 prices
Source: UK Trade Statistics
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
billions
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
£(billions)
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
Exports of Gas from the UK
Imports of Gas into the UK

47. Trade balance in finished manufacturedTrade balance (Exports - Imports) £ billion per quarter, source: ONS
UK Trade Balance in Finished Manufactured Goods
Source: Reuters EcoWin
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
billions
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
GBP(billions)
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
The structural trade deficit in
manufactured goods seems to
have stabilised but why is the UK
such a large net importer of
manufactured products?

48. UK – EU27 Trade BalanceMonthly balance of trade in goods and services, £ billion, seasonally adjusted
United Kingdom Trade Balance with EU27
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11 12 13
billions
-6
-5
-4
-3
-2
-1
0
GBP(billions)
-6
-5
-4
-3
-2
-1
0

49. UK – India TradeAnnual data, £ billion
Source: Reuters EcoWin
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
billions
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
GBP(billions)
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
Exports to India
Imports from India
Annual Balance of Trade

50. UK China Trade£ billion per month, trade in goods and services
UK, Exports to and Imports from China
Source: Reuters EcoWin
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
billions
0.0
0.5
1.0
1.5
2.0
2.5
3.0
GBP(billions)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Exports to China
Imports from China

51. Exports and Imports as Share of GDPAnnual value of UK exports as a percentage of GDP
UK- Exports and Imports of Goods and Services as % of GDP
Exports of goods & services, % Imports of goods & services, %
Source: Euro Stat
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
%ofGDP
15
20
25
30
35
40
45
50
%ofGDP
15
20
25
30
35
40
45
50

52. FDI into the UK EconomyValue of external liabilities - direct and portfolio investment
Foreign Investment in the UK Economy
Source: Reuters EcoWin
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
thousandbillions
0.0
0.5
1.0
1.5
2.0
2.5
3.0
£(thousandbillions)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Portfolio investment
Direct investment

53. Fiscal PolicyMeasured as a % of national income, data for 2013-14 is a forecast
Source: OECD World Economic Outlook
03 04 05 06 07 08 09 10 11 12 13 14
34.0
36.0
38.0
40.0
42.0
44.0
46.0
48.0
50.0
52.0
PercentofGDP
34.0
36.0
38.0
40.0
42.0
44.0
46.0
48.0
50.0
52.0
Tax Revenue (% of GDP)
Government Spending (% of GDP)
The big issue in fiscal
policy is fiscal austerity –
i.e. Cutting the budget
deficit through spending
cuts and tax rises G>T =
budget
deficit

54. How much borrowing can the UK take?
Source: OECD World Economic Outlook
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
%ofGDP
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
Annual government budget balance
Budget deficit
Budget surplus
20
40
60
80
%ofGDP
20
40
60
80
Net Government Debt (% of GDP)
Fiscal austerity as Coalition aims to cut the
size of the budget deficit over the next five
years – will the pain work?

55. monthly average 10 year bond yield, per cent, source: IMF
Greece Ireland UK Spain Italy
Source: IMF
08 09 10 11 12 13
0
5
10
15
20
25
30
Percent
0
5
10
15
20
25
30
The UK government can borrow money for
10 years at cheap interest rates (around
2%) – whereas the cost of borrowing for
other countries is significantly higher – this
gives the UK an advantage – has it been
used well?

56. Interest on UK Government Debt£ billion at current prices, non-seasonally adjusted
Interest Payable on United Kingdom Government Debt
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11 12
£(billions)
20
25
30
35
40
45
50
£(billions)
20
25
30
35
40
45
50

57. Government spendingAnnual % change in government spending at constant prices, 2013 and 2014 is a forecast
UK Government Spending and the Economic Cycle
Real government spending Real GDP [ar 1 year]
Source: OECD World Economic Outlook
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Percent
-5
-4
-3
-2
-1
0
1
2
3
4
5
Percent
-5
-4
-3
-2
-1
0
1
2
3
4
5
Growth of Real GDP
Growth of Govt Spending
Govt spending chart does not include capital spending

58. The squeeze on public sector jobsPer cent, seasonally adjusted
UK Public Sector Employment as % of Total Employment
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11 12 13
millions
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
GBP(millions)
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5

59. BRICs growth
Source: International Monetary Fund
Annual%changeinrealGDP
Annual%changeinrealGDP
China
India
Brazil

60. Germany
United Kingdom
Ireland
Greece
Spain
Euro Zone
Source: OECD World Economic Outlook
04 05 06 07 08 09 10 11 12 13 14
Annual%changeinrealGDP
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Annual%changeinrealGDP
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0

61. Productivity in the UKIndex of output per hour worked, whole economy, seasonally adjusted
Source: Reuters EcoWin
01 02 03 04 05 06 07 08 09 10 11 12
87.5
90.0
92.5
95.0
97.5
100.0
102.5
105.0
Index
87.5
90.0
92.5
95.0
97.5
100.0
102.5
105.0
One of the puzzles of the
period since the recession
came to an end – why has
labour productivity grown so
slowly?

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