Here is a short but focused update on the UK economy to help provide context for students ahead of their macro papers in June 2018.

1. Ten Minute
Update on the
UK Economy
A Level Economics Revision
– June 2018

2. Unemployment
Unemployment Rate
4.2% of the labour force
(lowest unemployment for
45 years)
Youth unemployment
12.1% of young people aged
16-24. Falling from 20% five
years ago
Long term unemployment
1.1% of labour force - steep
fall suggesting a reduction in
structural unemployment
levels

3. Changing labour market
Part-time employment
8.6 million - rising due to
flexible labour market + high
under-employment
Zero hours contracts
901,000 people were on zero-
hours contracts in their main
job in 2017, this is 2.8% of all
people in employment.
Trade union membership
Now at 5.5 million or 22% of
the employed labour force

4. Household Wealth and Debt
Household debt
133% of household income in
2017, peaked at 145% in 2008
House prices
Prices rose 4% in 2017 - market
now slowing - prospect of
mortgages rates increasing +
significant housing affordability
issues
Household savings ratio
5.3% of disposable income -
very low due to negative real
returns for savers and rising
household fuel/food bills

5. Inflation
CPI inflation rate
2.4% - a phase of disinflation
as impact of weaker pound
falls out of calculation
Oil prices
$145/barrel in 2008 but just
$30/barrel in 2014. Reached
$80/barrel in May 2018 for
first time since late 2014.
Real incomes
In 2017 median gross weekly
earnings for full-time
employees were £550, up 2.2%
on 2016. Adjusted for inflation,
full-time workers’ weekly
earnings decreased by 0.5%.

6. Monetary Policy
Monetary policy interest rate
0.5% - BoE expected to raise
rates but very gradually later
on in 2018
Quantitative easing (QE)
QE totals £445 billion of assets,
£435 billion of which are
government bonds and £10
billion of commercial debt.
Mortgage interest rates
These remain low. - average
Standard Variable Rate is 4.2%,
average 2-year fixed rate was
1.5%

7. UK Overseas Trade
Trade in goods and services
Deficit of £136 billion on
trade in goods and a surplus
of £107 billion on trade in
services in 2017.
Overall trade deficit was £29
billion in 2017
Current account balance
Current account deficit was
at a record high of 5.6% in
GDP in 2016 but then
dropped to 4.1% in 2017.

8. Government borrowing,
taxes and debt
Government borrowing (fiscal
deficit)
Fiscal deficit in 2017-18 was £40
billion or 2% of GDP, down from
peak of 9.9% of GDP (£153bn) in
2009-10 during the recession
Government Debt to GDP
85.3% of GDP - debt ratio now
stabilizing as fiscal deficit comes
down
Tax Burden
UK government plans to
increase tax revenues to above
37 per cent of national income
by 2021-22 – the highest level
since 1986-87

9. Economic growth and
productivity
Economic growth
UK GDP grew by 1.8% in 2017,
following growth of 1.9% in
2016.
Productivity gap
In 2016, ranked on GDP per
hour worked, the UK came
fifth out of G7 countries, with
Germany top and Japan
bottom
Productivity slowdown
UK labour productivity in 2017
was only 1.8% above what it
was 10 years earlier in 2007
(pre-recession peak level).

10. Supply-side performance
NAIRU
Estimated NAIRU for UK
(according to BoE) is now 4.5%
of labour force (down from
5.5% previous estimate)
Maths Rankings for UK
students
UK ranked 22nd out of 36
advanced countries for scores
on PISA tests
Research and development
spending
£33 billion in 2016 which is
1.7% of GDP. Government has
target to raise to 2% of GDP.

11. EU & Global Context
UK-EU Trade Flows
EU accounted for 44% of UK
exports of and 53% of imports
in 2017
Competitiveness ranking
8th in 2018 out of 137
countries, ranked 11th for
infrastructure and 13th for
innovation
Human Development Index
ranking
16th in 2017, GNI per capita of
$37,931 (PPP)