Slides from the Resolution Foundation event 'Spring in our step or long winter ahead? The UK economy on Brexit eve'

1. March 19
@resfoundation
@MattWhittakerRF
1
Spring Forward or Fall Back?
The questions facing the UK economy ahead
of Spring Statement 2019
Matt Whitaker
#SpringStatement

2. 2
Spring Statements are usually about…
@resfoundation

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What the forecasts will say and what the Chancellor will do
i.e. answers

4. 4
But this time we’re unlikely to see big
changes to the numbers…
@resfoundation

5. 5
Growth has slowed, but most forecasters expect some of it to
return over time – and the labour market is holding up
Projected growth rates in 2019
@resfoundation
Notes/Source: Bank of England data cover Nov-18 and Feb-19. Min, max and average drawn from those forecasters included in the HMT Independent Forecasts
publication in both the Oct-18 and Feb-19 editions. CPI forecasts cover Q4 2019. HMT, Forecasts for the UK economy: a comparison of independent forecasts,
OBR, Economic and Fiscal Outlook and Bank of England, Inflation Report

6. 6
Growth has slowed, but most forecasters expect some of it to
return over time – and the labour market is holding up
Projected growth rates in 2019
@resfoundation
Notes/Source: Bank of England data cover Nov-18 and Feb-19. Min, max and average drawn from those forecasters included in the HMT Independent Forecasts
publication in both the Oct-18 and Feb-19 editions. CPI forecasts cover Q4 2019. HMT, Forecasts for the UK economy: a comparison of independent forecasts,
OBR, Economic and Fiscal Outlook and Bank of England, Inflation Report

7. 7
Projected growth rates in 2019
@resfoundation
Notes/Source: Bank of England data cover Nov-18 and Feb-19. Min, max and average drawn from those forecasters included in the HMT Independent Forecasts
publication in both the Oct-18 and Feb-19 editions. CPI forecasts cover Q4 2019. HMT, Forecasts for the UK economy: a comparison of independent forecasts,
OBR, Economic and Fiscal Outlook and Bank of England, Inflation Report
Growth has slowed, but most forecasters expect some of it to
return over time – and the labour market is holding up

8. 8
And we can expect little on the
policy front too…
@resfoundation

9. @resfoundation 9
Our politicians are a little distracted

10. @resfoundation 10
And the Chancellor is still waiting for his “deal dividend”

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But uncertainty abounds…
@resfoundation

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The Bank of England has said there’s a one-in-four chance of the
UK entering recession in 2019
Probability distribution for GDP four quarters out from selected Bank of England Inflation Reports
@resfoundation
Notes/Source: In each instance, the GDP growth projections are based on market interest rate expectations and other policy measures as announced at the time
of the relevant Inflation Report. Bank of England, Inflation Report, various

13. 13
So this time it’s all about the questions:
three big ones for our economy…
@resfoundation

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(1) How much of our recently missing
business investment will eventually return,
and how much is permanently lost?
@resfoundation

15. 15
Business investment has flat-lined ever since the EU referendum
was announced
Indices of business investment after previous recessions by numbers of quarters since the GDP peak: UK
@resfoundation
Notes/Source: Chained-volume measure. Recessions are defined as at least two consecutive quarters of negative GDP growth. Previous recessions include those
beginning in 1973, 1975, 1980 and 1990s. A recovery ends if a second recession occurs in the period shown. Bank of England, Inflation Report, February 2019,
Chart 2.3

16. 16
More uncertainty could lead to more lost investment:
four more quarters = £9.3 billion
Annualised real-terms business investment by numbers of quarters since the pre-crisis GDP peak: UK
@resfoundation
Notes/Source: Chained-volume measure. Recessions are defined as at least two consecutive quarters of negative GDP growth. Previous recessions include those
beginning in 1973, 1975, 1980 and 1990s. A recovery ends if a second recession occurs in the period shown. Bank of England, Inflation Report, February 2019,
Chart 2.3

17. 17
(2) When and how will consumers
bring their spending back in line with
their incomes?
@resfoundation

18. 18
Incomes have been damaged by the referendum result, but
consumers have continued spending
Indices of annualised real income and real consumption per capita, 2015 Q3 = 100: UK
@resfoundation
Notes/Source: ONS, National Accounts, time series NRJR, ABJR, HAYO & EBAQ

19. 19
Reflecting a belief that the economy faces hard times in the
coming months, but I don’t
Net balances of positive and negative responses to selected consumer confidence questions: UK
@resfoundation
Notes/Source: Both questions ask respondents to say whether they expect things to get “a lot better”, “a little better”, “stay the same”, “a little worse” or “a
lot worse” over the coming 12 months. The responses are then weighted so that extreme answers (“a lot”) carry twice the weight of modest ones (“a little”),
and net balances are then recorded. Research carried out by GfK on behalf of the European Commission

20. 20
Yet there is evidence to suggest that many households are
vulnerable to any change in fortune
Debt ‘distress’ among working-age households: GB, September 2018
@resfoundation
Notes/Source: RF analysis of Bank of England, NMG Survey

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(3) How does government ‘end austerity’
and deliver the reductions it wants to
see in our elevated stock of debt?
@resfoundation

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The last Budget turned the corner on overall departmental
spending, but left many facing further cuts
Cumulative real-terms change in RDEL per person from 2019-20 (GDP deflator): UK
@resfoundation
Notes/Source: From 2019-20 the RDEL totals are reduced to remove the effect of extra payments made to departments to compensate them for an increase in
employer pension contribution costs (with a partially offsetting saving in AME). HMT, PESA 2018; OBR, Economic and Fiscal Outlook; HMT, Budget 2018; ONS, GDP
deflator, time series L8GG; and RF analysis

23. 23
‘Ending austerity’ for other departments, and for people,
requires some tough choices
@resfoundation
Notes/Source: RF modelling using HMT, PESA 2018; OBR, Economic and Fiscal Outlook; HMT, Budget 2018; ONS, GDP deflator, time series L8GG

24. 24
Real-terms protection outside health, defence and aid would
cost £4.5bn by 2023-24
@resfoundation
Notes/Source: RF modelling using HMT, PESA 2018; OBR, Economic and Fiscal Outlook; HMT, Budget 2018; ONS, GDP deflator, time series L8GG

25. 25
Maintaining all day-to-day departmental spending at its current
share of GDP would require £10.8bn more a year
@resfoundation
Notes/Source: RF modelling using HMT, PESA 2018; OBR, Economic and Fiscal Outlook; HMT, Budget 2018; ONS, GDP deflator, time series L8GG

26. 26
Restoring it to its 2007-08 share of GDP would mean finding an
extra £56.3bn a year
@resfoundation
Notes/Source: RF modelling using HMT, PESA 2018; OBR, Economic and Fiscal Outlook; HMT, Budget 2018; ONS, GDP deflator, time series L8GG

27. 27
So this might be a Spring
Statement of few answers…
@resfoundation
But it’s clear that our economy
faces some very large questions

28. March 19@resfoundation 28#SpringStatement
The UK economy on Brexit eve
Spring in our step or long winter ahead?
Chris Giles, Economics Editor at the Financial Times
Karen Ward, Chief Market Strategist for EMEA at J.P. Morgan Asset
Management
Deborah Mattinson, Founding Partner of Britain Thinks
Matt Whittaker, Deputy Director, Resolution Foundation
Chair: Torsten Bell, Director of the Resolution Foundation

29. BritainThinks | Private and Confidential
britainthinks.com
Do voters have a spring in their step?
4th March, 2019
Summary of our recent research findings

30. 30BritainThinks | Private and Confidential
1
Do voters have a spring in their step?
IRSG Council

31. Er, no. Voters have rarely been more down beat…
31BritainThinks
81%
Agree that the British
public is currently
feeling anxious about
the future
BritainThinks, The Year Ahead, January 2018 - Q4. To what extent, if at all, do you agree or disagree with the following statement: The British public is currently feeling anxious about the
future? Base: All respondents (n=2051)
Q. What 3 words sum up the last year in politics?

32. Front-of-mind concerns centre on the state of public services –
austerity is biting hard:
32BritainThinks
Policing
The NHS
Education
“The NHS – It’s always been a big thing for me, as I work there. It
seems that there’s never been a relevant strategy across
governments…It seems that all problems come [from No. 10].’”
“In this country you want somebody who is strong, nothing is being
done about stabbing.”
“I went to University of East London free, the only thing I had was the
loan from student finance, school fees were free. All this money we
are wasting on aid to foreign countries, it’s not good enough.”

33. Voters feel that there are many important issues facing the country
– and that Brexit is distracting from these.
33BritainThinks | Private and Confidential
(Q. To what extent do you agree or disagree with each of the following statements? ‘The UK’s focus on Brexit has significantly hampered our ability to deal with other major issues facing the country’ [Base: All respondents (n=2047)])
This idea that the political elite has ‘taken its eye off the ball’ acts as the backdrop to subsequent
political views.
Biggest concerns for the UK
• Cost of living
• Immigration
• Crime
• Housing supply
• Homelessness
• Insufficient funding for the NHS
73%
Of the public say that the
UK’s focus on Brexit has
significantly hampered our
ability to deal with major
issues facing the country
“We’ve got record
numbers of young
kids being murdered
in this country, and
no one is paying
any attention.”

34. Divergent worldviews shape the way that Leavers and Remainers
see the Brexit debate.
34BritainThinks | Private and Confidential
• Some Leave voters drew a large UK at the
centre, with Europe comparatively small on
the sidelines.
• They also depicted the UK as geographically
close to the USA.
• Remain voters’ maps positioned the UK
closer to Europe and further from the USA.
• For both Leave and Remain voters, Ireland
was often entirely absent, as was Africa.
We asked swing voters to draw a map of the world, including the UK.

35. 35BritainThinks | Private and Confidential
Die-hards
Cautious Optimists
Accepting
Pragmatists
Devastated
Pessimists
Pleased about the result and have no significant concerns
about leaving
Pleased about the result but have some significant
concerns about leaving
Disappointed by the result but can see some significant
positives to leaving
Disappointed by the result and can see no significant
positives to leaving
Our Brexit Diaries series identified four Brexit voter segments:

36. The size of these segments remains stable.
36BritainThinks | Private and Confidential
37%
38%
31%
34%
31%
31%
32%
27%
30%
16%
18% 18%
17%
18%
15%
19%
16% 16%
14%
12%
10%
12%
13%
12%
10%
9%
12%
30%
27%
34%
31%
32%
35%
32%
37%
33%
01 March 2017 01 June 2017 01 September 2017 01 December 2017 01 March 2018 01 June 2018 01 September 2018 01 December 2018
Die-hards
Cautious
Optimists
Accepting
Pragmatists
Devastated
Pessimists
(Q. In 2016, the United Kingdom voted to leave the European Union, in a referendum on 23rd June. Thinking about this referendum, which of the following comes closest to describing your viewpoint? [Base: All respondents (n=2047)])
01 January 2019

37. Previously, most swing voters still believed that Brexit would be a
success – now they think it won’t deliver what they hoped.
37BritainThinks | Private and Confidential
“Brexit is like David Beckham,
because I think it’s going to get better
with age. Because once we’re out of
the EU, it will get better, but it will take
some time.”
“I am looking forward to it. This is a
fantastic opportunity to rebuild the
country: more police, better hospitals,
more schools and teachers.”
Then: Now:
“We’ve not got anything
back, we’ve given loads of
concessions, they’re in
control… Britain ain’t worth
a carrot and we’re back to
square one.”

38. Negative associations with Brexit are now paramount, with many
also alluding to a sense of hopelessness.
38BritainThinks | Private and Confidential
“Bull in a china shop
– it’s a mess!”
“A chameleon
because it keeps
changing.”
‘If Brexit were an animal, what animal would it be?’
“A fish – opening its
mouth, nothing coming
out, and forgetting what
they said yesterday.”
“A sheep – we’re
followers not making
any decisions.”

39. 39BritainThinks | Private and Confidential
2
And can politicians rise to the
challenge?

40. Voters have rarely felt more let down by politicians, with recent
debate on Brexit seen as politics at its worst.
40BritainThinks | Private and Confidential
1. Frustration at lack of any
decisive action.
2. Political factions are seen to
be playing games.
3. The focus on a ‘People’s
Brexit’ is thought to have been
lost.
“They’re not interested
in the general public,
they just want to keep
their party in.”
“Just make a decision –
leave or not leave.
[What would you
choose?] I don’t know
anymore.”
“Labour have gone down
the route of ‘let’s blame the
Conservatives’.”
83% of public agree that ‘the entire political establishment has failed
country on Brexit’

41. The UK voted to leave the EU in a referendum on 23rd June 2016. Since then, has your impression
of the following people and organisations got better or worse?
Brexit is a ‘plague on all your houses’.
41BritainThinks | Private and Confidential
The British public Theresa May The European
Union
David Cameron The Conservative
Party
The Labour Party Jeremy Corbyn The British
Parliament
Better Worse
13% 17% 8% 4% 7% 10% 10% 4%
31%
49% 49%
52% 56% 56% 61% 68%
(Q. The UK voted to leave the EU in a referendum on 23rd June 2016. Since then, has your impression of the following people and organisations got better or worse?’ [Base: All respondents (n=2047)])

42. Theresa May is respected, but there is no enthusiasm for her
leadership.
42BritainThinks | Private and Confidential
• Voters respect the stubbornness of the Prime
Minister and her devotion to her cause. There
is widespread pity for the hand she has been
dealt.
• But this respect does not stretch to
enthusiasm:
• Leavers still doubt her motivation.
• Remainers feel disenfranchised.
• Voters are already looking past her to the next
Prime Minister – but rarely do so with
excitement.
“She’s doing her best, she
can only do what they can
let her do.”

43. Jeremy Corbyn appears to be losing his ‘man of principle’ tag.
43BritainThinks | Private and Confidential
In focus groups over the last 2 years,
voters told us…
• That Jeremy Corbyn sticks to his principles
and “tells it how it is”.
• That his position on Brexit has been
confusing, but also not integral to his
reputation.
Then: Now:
1. His actions and words in Parliament do
not feel like they are driven by principle.
2. His actions (e.g. General Election calls)
also feel tangential to the key issue of
Brexit.
% of public who agree that ‘on the issue of Brexit,
Jeremy Corbyn/Theresa May is more concerned
about party politics than the national interest’
69% 45%
Jeremy Corbyn Theresa May

44. Labour is seen as the less-good option for the economy overall and
lags far behind the Conservatives for ‘big business’.
44BritainThinks | Private and Confidential
31%
37%
21%
40%
34%
55%
29% 29%
24%
The UK economy Small businesses in
the UK
Large businesses in
the UK
Labour Conservative Neither
Which of the following parties would be the best party
for….
“They [Labour] are frightening. If
they came into power they would
just spend.”
Q5. If there were a General Election tomorrow, which of the following political parties do you think would be the best party for… Base: All respondents (n=2044)
• Thinking about ‘business’ and the
‘economy’ magnifies any concerns
people have towards Labour .
• The Conservatives are seen as a ‘safer
pair of hands’ for the UK economy and
for business, even among many Labour
voters.

45. Since GE 2017 both main parties have been stuck in deadlock, with
neither pulling ahead in the polls.
45BritainThinks Reference: BritainElects, 2018
IRSG Council

46. BritainThinks | Private and Confidential
britainthinks.com
Thank you
Deborah Mattinson
Founding Partner
BritainThinks
020 7845 5880
dmattinson@britainthinks.com