Jyske Bank Jul 06 Eco Outlook Uk

8/9/2019 Jyske Bank Jul 06 Eco Outlook Uk

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Economic Outlook, the UK

6 July 2010

Please direct inquiries, if any, to:

Tina Winther Frandsen, Senior Macroeconomic Analyst

[email protected]


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Summary the UK

Strong downturn followed by moderate upturn The strong downturn is replaced by recovery, but the upturn is still fragile.

So far, the upturn has been driven by substantial easing of the monetary and fiscal policies.e sen men n ca ors s gna a grow w con nue an e ous ng an a our mar e s

are improving. However, the imminent significant tightening of the fiscal policy and the highdebt level of the households adversely affect the growth prospects.

On the whole, we therefore expect relatively moderate growth at 1.2% this year and at 1.7%.

Consumers and companies are still cautious, but things are looking upfor exports High indebtedness, an uncertain job situation and very low wage growth have made

consumers save more and be less inclined to consume. The labour market is improving, andcombined with low interest rates and increasing housing prices, the pressure on the consumershas eased a bit. However, the fiscal-policy tightening measures are still preponderant.

We therefore expect private consumption to grow at a moderate rate.

Corporate investment has declined substantially, and the investment ratio is therefore verylow. We assess that investment activity will soon pick up, but growth will presumably be

moderate. Given the recovery of the global economy and the currency, which is still weak, things are

looking up for exports.

The Bank of England will keep interest rates at record low We expect the Bank of England to keep interest rates at the record low 0.5% until Q1 2011

despite the dilemma of high inflation.


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The upturn is moderate The strong downturn has been replaced by recovery, but the upturn is

still fragile.

The business trend indicators signal that growth will continue and the housing andlabour markets are improving. However, the imminent significant tightening of thefiscal policy and the high debt level of the households adversely affect growth.

On the whole, we expect relatively moderate growth at 1.2% this year and at 1.7% in.


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Business trend indicators si nal

improvement

Notably the manufacturing industry seems to be growing, while the servicesector has 'lost steam'.


5/15

The manufacturing industry inprogress

In recent months, the industrial production has increasedsignificantly.but it is a long way up to the old levels of production.

We expect that the industrial production will continue to grow.


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Consumers are still hesitant

High indebtedness, an uncertain job situation and very lowwage growth have prompted households to save more and toreduce private consumption.

owever, t e a our mar et s mprov ng, an com ne w t ow nterest ratesand the improvement in the housing market, the pressure on the consumers

has eased a bit. The need for fiscal-policy tightening is, however, still

All in all, we expect private consumption to grow at a moderate rate.


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Stabilisation in the labour market

The labour market is showing signs of stabilisation. A significantincrease in employment is not just around the corner, becausethe workforce has not been reduced nearly so sharply as production.

As wage growth has fallen markedly at the same time, real wages are innegative territory at the moment - the impact from the labour market is

therefore still acting as a damper on private consumption.

Wage growth (ex. bonus), 3 month moving average

UK: Average Wages

5,5

mln.)

% erage

4,0

4,5

5,0

umb

erofemployed(

Unemploymentin

y,3m

onthmovinga

3,0

3,5

y/

1,5

2,0

,

Source: Reuters Ecowin

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1,0


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Modest private-sector lending

Lending growth has slowed sharply. This indicates that banksare still reluctant to grant loans, but also that the demand forloans is low.

So ong as aggregate en ing remains t is ow, private consumption an t ehousing market will be impeded.


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Low investment activity Corporate investment has fallen sharply, and the investment

ratio is therefore low.

We expect that investment activity will soon begin to increaseut growt wi pro a y sti e mo erate.


11/15

Things look up for exports

In line with the improvement of the global economy, theprospects for exports are gradually improving and the weaknessof the currency is helping too.


12/15

The currenc has a reciated but

it is still weak


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Interest rates remain at recordlow

The relatively high inflation rate is a dilemma for the Bank of England,even though it is still temporary factors to a high extent thathave pushed inflation higher.

We expect t at in ation wi a rom t e current eve , an com ine witsignificant tightening of the fiscal policy, this will enable the BoE to be

hesitant. Therefore, we still assess that the BoE will keep interest rates at the- . .


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Strong consolidation of public

nances The recession and the fiscal-policy rescue packages have made

budget deficits and the government debt increase drastically.

Therefore, the government has presented a comprehensive savings plan aimedto bring the public finances back on a sustainable track. This will put a damper

on the UK growth prospects.


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Discla im er & D isclosu r e

Jyske Bank is supervised by the Danish Financial Supervisory Authority.Jys e Ban s ana ysts are su ject to t e recommen ations o T e Danis Securities Dea ersAssociation on the handling of conflicts of interest within investment banks.The analysis is based on information which Jyske Bank finds reliable, but Jyske Bankdoes not assume any responsibility for the correctness of the material nor for transactions madeon the basis of the information or the estimates of the research report. The estimates and recommendationso e researc repor may e c ange w ou no ce. e researc repor s or e persona use o ys eBank's customers and may not be copied. This report is an investment research report.

Co n f l i ct s o f i n t e r e st Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that analysesare e ng prepare n an o ec ve manner. ese proce ures ave een ncorpora e n e us nessprocedures covering the research activities of Jyske Markets, a business unit of Jyske Bank.Read more about Jyske Bank's policy on conflicts of interest at www.jyskemarkets.comJyske Bank's analysts may not hold positions in the instruments for which they prepare research reports.Jyske Bank may hold positions and/or have interests in the instruments for which such reports are prepared.

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Th e f i r s t p u b l i ca t i o n d a t e o f t h e r es ea r ch r e p or t

See the front page. All prices stated are the latest closing prices before the release of the report, unlessotherwise stated.

Financ ia l m ode ls

Jyske Bank uses one or more models based on traditional econometric and financial methods. The data usedare solely data available to the public.

s

Investment may involve risk, so assessments and recommendations, if any, in this research report mayinvolve risk. See the research report for an assessment of risk, if any.

Go o d a d vi ce

The future and historical returns estimated in the research report are stated as returns before costs sincereturns after costs depend on a number of factors relating to individual customer relations, custodian charges,volume of trade as well as market-, currency- and product-specific factors.

Jyske Bank Jul 06 Eco Outlook Uk

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