Economic Trends June 2011
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Transcript of Economic Trends June 2011
![Page 1: Economic Trends June 2011](https://reader034.fdocuments.in/reader034/viewer/2022052619/55596184d8b42a98708b4ff7/html5/thumbnails/1.jpg)
CIM Summer Marketing Conference
UK economic trends and prospects
Andrew Johnson – Senior Economist
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OVERVIEW
• Recent UK economic history
• Fiscal challenge
• Growth challenge
• Prospects for 2011• Prospects for 2011
• Looking ahead to 2012
• Key risks
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Recent economic historyIn 2008/09 the UK suffered its worst recession in 80 years
• Output declined by 6% (2009q3)
• Between 2008 and 2009 exports declined by 8.6% and imports by 9.1%
• Unemployment increased by 2.8pp to 7.9%
Sources: ONS, OECD
• Unemployment increased by 2.8pp to 7.9% (2010q1)
• The financial system was brought to the brink of collapse
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Recent economic historyDecline in context
0%
2%
4%
6%
8%
Source: ONS
-6%
-4%
-2%
1956
Q1
1960
Q1
1965
Q1
1970
Q1
1975
Q1
1980
Q1
1985
Q1
1990
Q1
1995
Q1
2000
Q1
2005
Q1
2010
Q1
1q 4q
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Recent economic historyLatest release in GDP growth, % change in output
Source: ONS
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Recent economic historyLatest BoE Inflation Report (May), CPI fan chart
Source: Bank of England
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Recent economic historyManufacturing, % change in output
-6%-4%-2%0%2%4%6%
Source: ONS
-14%-12%-10%
-8%-6%
2008
q220
08q3
2008
q420
09q1
2009
q220
09q3
2009
q420
10q1
2010
q220
10q3
2010
q420
11q1
1q 4q
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Fiscal ChallengeBudget 2010, UK structural deficit 2010 c.f. OECD
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Fiscal ChallengeBudget 2011, Receipts and expenditure as a % of GDP
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Fiscal ChallengeFiscal Mandate
• Achieve cyclically-adjusted (structural) balance by the end of the forecast period (2015/16)
• Public Sector Net Debt (PSND) falling by 2015/162015/16
• OBR to independently judge whether each budget means >50% chance of meeting targets
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Growth ChallengeRebalancing the economy, contributions to growth annual % change
0
2
4
6
-8
-6
-4
-2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Households Government Investment Inventories Net Trade GDP
Source: ONS
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Growth ChallengeManufacturers’ concerns with business environment
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Growth ChallengeAccumulation of barriers to growth
• Level and complexity of tax system
• Stock and flow of regulations
• Atrophy and distortion of financial sector outside of
banksbanks
• Poor supply and reliability of skills
• Uncertainty on climate and energy policy
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Growth ChallengeWhat has the government done?
• Bringing down corp tax, canceled Labour’s NI
rise, introduced Office of Tax Simplification
• Red tape challenge
• Business Growth Fund, Project Merlin• Business Growth Fund, Project Merlin
• Demand-led skills system
• Climate change and electricity market reforms
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Growth ChallengePlan B?
• Shaky growth is leading to
calls, from some, to move to a
‘Plan B’
• Others endorse govt’s fiscal • Others endorse govt’s fiscal
plans (IMF)
• Even if fiscal plans
unchanged, plenty of room for
action
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Prospects for 2011Domestic side of the economy weak, components of GDP q/q % chg
0.5
1.0
1.5
2.0
2.5
Households Government Inventories
Investment Trade GDP
-2.0
-1.5
-1.0
-0.5
0.0
0.5
2010q2 2010q3 2010q4 2011q1
Source: ONS
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Prospects for 2011Consumption and investment, forecast % chg q/q
1.5
2
2.5
3
Source: Oxford Economics
0
0.5
1
2011q2 2011q3 2011q4 2012q1 2012q2 2012q3 2012q4
Consumption Investment
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Prospects for 2011Exports growth has been strong
-10
0
10
20
30
40Domestic Export%
-60
-50
-40
-30
-20
-10
2004
q220
04q4
2005
q220
05q4
2006
q220
06q4
2007
q220
07q4
2008
q220
08q4
2009
q220
09q4
2010
q220
10q4
2011
q2
Source: EEF Business Trends Survey
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Prospects for 2011% change in annual output
2.0
2.5
3.0
3.5
4.0
0.0
0.5
1.0
1.5
2.0
2010 2011 2012
Manufacturing Rest of economy GDP
Source: ONS
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Looking ahead to 2012Economy still expected to recover
1
1.5
2
2.5
Source: HM Treasury survey of independent forecasters
0
0.5
1
2011 2012
March April May
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Looking ahead to 2012Interest rates start to rise, Bank rate, %
1.5
2
2.5
0
0.5
1
2011
q1
2011
q2
2011
q3
2011
q4
2012
q1
2012
q2
2012
q3
2012
q4
Source: Oxford Economics
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Key risksCommodity prices
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Key risksExport markets
10%
15%
20%
70000
72000
74000
EU (%chg, lhs) Rest of World (%chg, lhs) Total exports (£m, rhs)
-10%
-5%
0%
5%
2010 Q2 2010 Q3 2010 Q4 2011 Q1
60000
62000
64000
66000
68000
Source: ONS, HMRC
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Key risksAccess to finance, balance of companies reporting increase
(decrease) in availability of credit
-5
0
5%
-20
-15
-10
2010q1 2010q2 2010q3 2010q4 2011q1 2011q2
%
All companies Small companies only
Source: EEF