Download as PDF, PPTX
![-2
-1
0
1
2
3
4
5
6
2016 2017 2018 2019 2020 2021 2022
GDP-YoYGrowth(%)
Lowest [16- 19%] Low - Medium [15- 25%] Central [19- 29%]
Medium - Optimistic [0- 0%] Optimistic [8- 15%] Highest [21- 35%]
Mode BoE Upside Baseline
Downside
-3.9%
-2.8%
-1.1%
-4.6%
-3.9%
Average
-5%
-4%
-3%
-2%
-1%
0%
1949 - 1975 1976 - 1981 1982 - 1991 1992 - 2009 Downside
Peak-to-Trough(p.p.)
GDP forecasts
Comparison of YFEF’s GDP forecast scenarios vs BoE’s Fan Chart Peak-to-trough GDP in previous cycles
Our Baseline average of all forecasts falls broadly within the BoE central
forecast range while our extreme Upside and Downside scenarios,
understandably, are at the upper and lower ends of their range
Meanwhile, the Base scenario is largely consistent with the mean of BoE
forecasts. The probabilities assigned to the YFEF’s scenarios would be
expected to broadly align with the probabilities attached to similar
strength outturns in the BoE fan chart.
While the BoE fan chart is symmetrical by design, we believe that the current
risks for the UK economy are skewed toward Downside risks, given the
current risks of a No-Deal Brexit and other risks, such as a Eurozone downturn,
escalation of trade disputes, and a slowdown in China.
Source : YFEF, BoE and ONS Fabian Society |YF Finance & Economics | 11](https://image.slidesharecdn.com/yf-econupdate2019-08v1-200322141724/75/Yf-econ-update-2019-08_v1-0-11-2048.jpg)
![1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
2015 2016 2017 2018 2019 2020 2021 2022
Unemploymentrate(%)
Min - BoE Lowest [9- 33%] Low - Medium [35- 61%]
Central [24- 35%] Medium - Optimistic [0- 8%] Optimistic [0- 0%]
Highest [0- 0%] Upside Base
Downside Mode BoE
2.10
6.30
3.40
3.20
0.95
2.25
Average
0
1
2
3
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5
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7
1973 - 1977 1978 - 1983 1989 - 1992 2007 - 2011 Base Downside
Trough-to-Peak(p.p.)
Unemployment forecasts
Comparison of YFEF’s unemployment scenarios vs BoE’s GDP Fan
Chart
Peak-to-trough unemployment in previous cycles
Source : YFEF, BoE and ONS
In past recessions the average increase in the unemployment rate
between the peak and the trough is 3.8 p.p., while for YFEF’s
Downside scenario it is 2.3 p.p. YFEF’s Downside impact is below the
historical average but still broadly consistent with rises seen in previous
recessions if we exclude the rise in the 1978-83 recession.
YFEF’s Downside scenario shows a peak of 5.4% unemployment, whereas
during 2008 and 2009 the unemployment rate rose from 5.2% in 2007 to 8.4%
in 2011. Therefore, given the higher starting point (currently 3.9%
unemployment rate), a maximum of 5.4% unemployment rate in the
Downside scenario seems reasonable.
Fabian Society |YF Finance & Economics | 14](https://image.slidesharecdn.com/yf-econupdate2019-08v1-200322141724/75/Yf-econ-update-2019-08_v1-0-14-2048.jpg)
![-1
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1
2
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2015 2016 2017 2018 2019 2020 2021
CPI(annual)%
Min - BoE Lowest [15- 26%] Low - Medium [11- 16%]
Central [13- 23%] Medium - Optimistic [13- 22%] Optimistic [12- 14%]
Highest [9- 29%] Upside Base
Downside Mode BoE
Comparison of YFEF’s CPI forecast scenarios vs BoE’s GDP Fan Chart
CPI forecasts
YFEF’s scenario have been compared against the latest Bank of England (BoE)
CPI forecast fan chart. The fan chart shows that the three scenarios from YFEF
are within a narrow range of the BoE’s fan.
Fabian Society |YF Finance & Economics | 22](https://image.slidesharecdn.com/yf-econupdate2019-08v1-200322141724/75/Yf-econ-update-2019-08_v1-0-22-2048.jpg)
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- 2. SUMMARY RECENT ECONOMIC DEVELOPMENTS: •GDP fell 0.2% in the second quarter of 2019, representing the first drop since Q4 2012. • The housing market started to weaken the months of June and July. • The global economy lost its pace mostly as a result of US-China trade war and the fading effect of US fiscal stimulus. LOOKING FORWARD: • UK’s Q3 is likely to recover due to Brexit related distortions (e.g. another round of stockpiling). • US-China trade tensions continue with more American tariffs. China responded by devaluating its currency. Fabian Society |YF Finance & Economics | 1
- 3. -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 2017 2018 20192020 2021 GDP(YoY,%growth) Oxford Capital: Disorderly Capital: Orderly Capital: Delay S&P IMF no border distruption IMF severe GDP growth in Brexit no-deal forecasts GDP Q2 overview and forecasts The economy continues to struggle to establish significant forward momentum and this is represented in peer forecasts. Fabian Society |YF Finance & Economics | 3
- 4. 97 98 99 100 101 102 103 104 May2018 Jun2018 Jul2018 Aug2018 Sep2018 Oct2018 Nov2018 Dec2018 Jan2019 Feb2019 Mar2019 Apr2019 May2019 Jun2019 Production monthly Manufacturingmonthly -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2008Q1 2008Q4 2009Q3 2010Q2 2011Q1 2011Q4 2012Q3 2013Q2 2014Q1 2014Q4 2015Q3 2016Q2 2017Q1 2017Q4 2018Q3 2019Q2 -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% Quarter on quarter (left hand side) Source : IMF & ONS UK GDP saw the first quarterly contraction since Q4 2012 attributed to declining manufacturing output related to Brexit UK real GDP growth Fabian Society |YF Finance & Economics | 4 UK monthly index of sectoral output
- 5. 45 50 55 60 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Services Manufacturing Construction 45 50 55 60 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 ServicesManufacturing Construction UK COMPOSITE GROWTH INDICATOR (Purchasing Managers Index, 50+ indicates growth) GROWTH CONTRACTION Source : CIPS/Markit Low and Falling Business Activity: A Sign of A Shrinking Economy Fabian Society |YF Finance & Economics | 5
- 6. -30 -20 -10 0 10 20 30 40 50 -30 -20 -10 0 10 20 30 40 50 Q32010 Q12011 Q32011 Q12012 Q32012 Q12013 Q32013 Q12014 Q32014 Q12015 Q32015 Q12016 Q32016 Q12017 Q32017 Q12018 Q32018 Q12019 Q32019 Smallbusinessconfidenceindex Businessconfidenceindex ICAEW BCM (allbusinesses) Small Business Confidence Index BUSINESS CONFIDENCE, INDEX* CONSUMER CONFIDENCE, INDEX* Source: YouGov/ONS (savings ratio) * Score over 100 means more consumers are confident than unconfident Consumer and Business Confidence Remain Low -20 -15 -10 -5 0 5 10 100 102 104 106 108 110 112 114 116 01/2016 03/2016 05/2016 07/2016 09/2016 11/2016 01/2017 03/2017 05/2017 07/2017 09/2017 11/2017 01/2018 03/2018 05/2018 07/2018 09/2018 11/2018 01/2019 03/2019 Householdnetlending Consumerconfidenceindex Consumer confidence index Household net lending (% of GDP) Fabian Society |YF Finance & Economics | 6
- 7. Source : uk.investing.com UK:FTSE 100 AND 250 US: S&P 500 01 Jan 2017 = 100 Britain’s stock market indices fell, joining a sell-off in global markets, as U.S.-China trade tensions 90 95 100 105 110 115 120 125 130 135 140 01/2017 02/2017 03/2017 04/2017 05/2017 06/2017 07/2017 08/2017 09/2017 10/2017 11/2017 12/2017 01/2018 02/2018 03/2018 04/2018 05/2018 06/2018 07/2018 08/2018 09/2018 10/2018 11/2018 12/2018 01/2019 02/2019 03/2019 04/2019 05/2019 06/2019 07/2019 08/2019 FTSE 100 FTSE 250 S&P 500 Fabian Society |YF Finance & Economics | 7
- 8. 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% United States Germany Italy JapanUnited Kingdom China India GDPgrowth,annual% 2018 (Actual) 2019 (Forecast) 2020 (Forecast) Source : IMF The UK saw a further downgrade in forecast growth in the recent IMF World Economic Outlook IMF Forecasts: UK GDP growth, annual IMF Forecasts: Selected Countries GDP growth, annual 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 GDP,Annual% Sep-17 Apr-18 Apr-19 Fabian Society |YF Finance & Economics | 8
- 9. GDP forecasts Upside BeaconEconomicForecasting Pantheon KernConsulting CapitalEconomics ITEMClub OxfordEconomics Heteronomics ExperianEconomics CEBR Commerzbank BloombergEconomics Base SantanderGBM JPMorgan INGFinancialMarkets DeutscheBank DaiwaCapitalMarkets EconomicPerspectives Nomura SocieteGenerale HSBC Citigroup BankofAmerica-MerrillLynch NatwestMarkets Downside 2020 -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Upside Pantheon KernConsulting Heteronomics CEBR CBI NatwestMarkets INGFinancialMarkets DaiwaCapitalMarkets CapitalEconomics EconomicPerspectives Base BeaconEconomicForecasting SocieteGenerale SantanderGBM Commerzbank ITEMClub OxfordEconomics ExperianEconomics JPMorgan HSBC DeutscheBank Citigroup BloombergEconomics Nomura BankofAmerica-MerrillLynch Downside 2019YoYGrowth 2019 Comparison ofYFEF’s GDP rate forecasts with 2019, 2020 central forecasts of other institutions Source: YFEF and HMT Our Baseline scenario takes an average of the forecasts of other institutions and we construct Upside (optimistic) and Downside (pessimistic) scenarios based on thee forecasts. YFEF’s Downside scenario shows -0.9% and -1.1% growth in GDP, which represents a Downside risk. Fabian Society |YF Finance & Economics | 9
- 10. Historical GDP vsminimum of Upside scenarios and maximum of Downside scenarios -6 -4 -2 0 2 4 6 8 10 12 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 GDPAnnualGrowth(%) GDP, historic Upside Baseline Downside Upside Max Downside Min 7% - occurrence ratio for GDP annual growth rates 40% - occurrence ratio for GDP annual growth rates to be or above 3.0% -2 -1 -1 0 1 1 2 2 3 3 4 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 GDP-YoYGrowth(%) Upside Baseline Downside Oxford Economics ITEM Club HMT Consensus - Lowest (Medium-Term forecast) HMT Consensus - Highest (Medium-Term forecast) HMT Consensus - Average GDP forecasts Medium term GDP forecasts for the next five years Our Downside and Upside scenarios span the range of probable paths for GDP growth. Regarding our Downside scenarios, the growth rates recover in 2021, as the economy is expected to return towards the same long-run trend growth rate in all scenarios. YFEF’s maximum Upside forecasted growth rates of 3% have occurred in 27 years in the past 70 years, i.e. a frequency of 40%. Nonetheless, growth rates of this magnitude have been observed mostly during the 1950s and 1980s. Currently following a decade of low underlying productivity growth, GDP growth rates higher than 3% should have a lower probability than the historic average. Source : YFEF, HMT, Oxford Economics and ONS Fabian Society |YF Finance & Economics | 10
- 11. -2 -1 0 1 2 3 4 5 6 2016 2017 20182019 2020 2021 2022 GDP-YoYGrowth(%) Lowest [16- 19%] Low - Medium [15- 25%] Central [19- 29%] Medium - Optimistic [0- 0%] Optimistic [8- 15%] Highest [21- 35%] Mode BoE Upside Baseline Downside -3.9% -2.8% -1.1% -4.6% -3.9% Average -5% -4% -3% -2% -1% 0% 1949 - 1975 1976 - 1981 1982 - 1991 1992 - 2009 Downside Peak-to-Trough(p.p.) GDP forecasts Comparison of YFEF’s GDP forecast scenarios vs BoE’s Fan Chart Peak-to-trough GDP in previous cycles Our Baseline average of all forecasts falls broadly within the BoE central forecast range while our extreme Upside and Downside scenarios, understandably, are at the upper and lower ends of their range Meanwhile, the Base scenario is largely consistent with the mean of BoE forecasts. The probabilities assigned to the YFEF’s scenarios would be expected to broadly align with the probabilities attached to similar strength outturns in the BoE fan chart. While the BoE fan chart is symmetrical by design, we believe that the current risks for the UK economy are skewed toward Downside risks, given the current risks of a No-Deal Brexit and other risks, such as a Eurozone downturn, escalation of trade disputes, and a slowdown in China. Source : YFEF, BoE and ONS Fabian Society |YF Finance & Economics | 11
- 12. Downside SocieteGenerale SantanderGBM EconomicPerspectives Citigroup NatwestMarkets DeutscheBank KernConsulting INGFinancialMarkets ExperianEconomics CEBR BloombergEconomics Base Nomura DaiwaCapitalMarkets CapitalEconomics Commerzbank ITEMClub BeaconEconomicForecasting OxfordEconomics Pantheon JPMorgan Heteronomics Upside 2020 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% Downside SocieteGenerale CBI SantanderGBM KernConsulting NatwestMarkets BloombergEconomics ExperianEconomics INGFinancialMarkets DeutscheBank DaiwaCapitalMarkets Citigroup Base EconomicPerspectives Nomura Commerzbank CapitalEconomics ITEMClub CEBR JPMorgan OxfordEconomics Pantheon Heteronomics BeaconEconomicForecasting Upside Unemploymentrate(%) 2019 Unemployment forecasts Comparison ofYFEF’s unemployment rate forecasts with 2019, 2020 central forecasts of other institutions Source: YFEF and HMT Unemployment forecasts from the other institutions range from 3.6% and 3.3% to 4.3% and 4.9% for Q4, 2019 and 2020 respectively. Our Baseline (average) scenario has unemployment at 4.0% in 2019 and 4.1% in 2020. Our illustrative Downside (pessimistic) scenario has unemployment at 5% and 5.4% Fabian Society |YF Finance & Economics | 12
- 13. 3.0 3.5 4.0 4.5 5.0 5.5 2015 2016 20172018 2019 2020 2021 2022 2023 Unemploymentrate(%) Upside Base Downside Oxford Economics HMT Consensus - Average HMT Consensus - Lowest (Medium-Term forecast) HMT Consensus - Highest (Medium-Term forecast) Unemployment forecasts Medium term unemployment forecasts for the next five years Historical unemployment vs minimum of Upside scenarios and maximum of Downside scenarios 0 2 4 6 8 10 12 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 UnemploymentRate(%) Historial unemplotment (LFS) Downside Base Upside Upside Min Downside Max 0% - occurrence ratio for unemployment rates 65% - occurrence ratio for unemployment rates equal to or above 5.35% Source : YFEF, HMT, Oxford Economics and ONS YFEF scenarios are generally more pessimistic than other institutions, with our Base and Downside scenarios showing higher unemployment than our peers. The highest unemployment rate scenario is 5.35%. According to historical observations, unemployment rates that were equal to or greater than this occurred 32 years from 1971 (a 65% occurrence ratio). Since there is currently a lower unemployment environment and the labour market is more dynamic, unemployment rates are expected to be at lower levels than those observed in the past. Our scenarios show unemployment rising, in line with the risks of Brexit. Fabian Society |YF Finance & Economics | 13
- 14. 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 2015 2016 20172018 2019 2020 2021 2022 Unemploymentrate(%) Min - BoE Lowest [9- 33%] Low - Medium [35- 61%] Central [24- 35%] Medium - Optimistic [0- 8%] Optimistic [0- 0%] Highest [0- 0%] Upside Base Downside Mode BoE 2.10 6.30 3.40 3.20 0.95 2.25 Average 0 1 2 3 4 5 6 7 1973 - 1977 1978 - 1983 1989 - 1992 2007 - 2011 Base Downside Trough-to-Peak(p.p.) Unemployment forecasts Comparison of YFEF’s unemployment scenarios vs BoE’s GDP Fan Chart Peak-to-trough unemployment in previous cycles Source : YFEF, BoE and ONS In past recessions the average increase in the unemployment rate between the peak and the trough is 3.8 p.p., while for YFEF’s Downside scenario it is 2.3 p.p. YFEF’s Downside impact is below the historical average but still broadly consistent with rises seen in previous recessions if we exclude the rise in the 1978-83 recession. YFEF’s Downside scenario shows a peak of 5.4% unemployment, whereas during 2008 and 2009 the unemployment rate rose from 5.2% in 2007 to 8.4% in 2011. Therefore, given the higher starting point (currently 3.9% unemployment rate), a maximum of 5.4% unemployment rate in the Downside scenario seems reasonable. Fabian Society |YF Finance & Economics | 14
- 15. Upside EconomicPerspectives KernConsulting CEBR ITEMClub Heteronomics BeaconEconomic Forecasting Pantheon BloombergEconomics Base OxfordEconomics Nomura DeutscheBank Citigroup CapitalEconomics ExperianEconomics SantanderGBM DaiwaCapitalMarkets Commerzbank BankofAmerica-Merrill Lynch NatwestMarkets Downside 2020 0.0% 0.5% 1.0% 1.5% 2.0% Upside EconomicPerspectives CBI KernConsulting Heteronomics Pantheon CEBR Base OxfordEconomics ITEMClub ExperianEconomics BeaconEconomicForecasting SocieteGenerale SantanderGBM Nomura NatwestMarkets DeutscheBank DaiwaCapitalMarkets Commerzbank Citigroup CapitalEconomics BloombergEconomics BankofAmerica-MerrillLynch Downside Bankrate(%) 2019 Bank rate forecasts Comparisonof YFEF’s Bank rate scenario with 2019, 2020 central forecasts of other institutions Source: YFEF and HMT Official bank rates from the other institutions range from 0.75% to 1.25% and 0.75% to 1.75% respectively. YFEFs Base Scenario, as an average of these forecasts, have interest rates at 0.8% and 1% for the two years. Though other major central banks have indicated they plan to loosen monetary policy, the Bank of England looks likely to keep policy unchanged until well into next year, unless there is a no-deal Brexit or other downside risks to growth begin to play out. Indeed at the time of writing, financial markets are pricing a 40% chance that the MPC will cut interest rates before the end of the year. But while the Fed and ECB have signalled an intention to loosen policy, the MPC has suggested it has no plans to cut Bank Rate if its central forecast plays our. As such, our baseline forecast assumes that Bank Rate remains relatively modest until mid-2020. Fabian Society |YF Finance & Economics | 15
- 16. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2015 2016 20172018 2019 2020 2021 2022 2023 2024 GovernmentBondYield10y(Q4%) Upside Base Downside Oxford Economics ITEM Club HMT Consensus - Average HMT Consensus - Lowest Bank rate (annual average, percent) forecast HMT Consensus - Highest Bank rate forecasts Medium term official bank rate forecasts for the next five years Historical official bank rate vs minimum of Upside scenarios and maximum of Downside scenarios 0 1 2 3 4 5 6 7 8 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 BankRate(%) Historical Central Bank Rates Upside Base Downside Downside Min Upside Max 59% - occurrence ratio for interest rates equal to or above 3.5% 0% - occurrence ratio for interest rates equal to or less than 0.25% UK rate cuts will only become a possibility in the event that activity materially undershoots the MPC’s forecast, inflation expectations fall back, or the UK leaves the EU in disorderly fashion. YFEFs Base (average) scenario is higher than the average of HMT’s. We forecast the MPC has increased the Central Bank rate to mitigate the effect of cost push inflationary pressures stemming from a depreciation of sterling. When comparing YFEF’s forecast rates of interest, alongside the historical period between 1993 to 2019 it appears that the Upside scenarios are reasonable. Frequent interest rate values occurred between 5% and 6%, reflecting monetary policy before the global financial crisis, and between 0.5% and 1%, reflecting monetary policy after the crisis when bank rates have been at historically low levels. Source : YFEF, HMT, Oxford Economics and ONS Fabian Society |YF Finance & Economics | 16
- 17. 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Upside CapitalEconomics EconomicPerspectives BeaconEconomicForecasting SantanderGBM Citigroup SocieteGenerale Base ITEMClub Heteronomics Pantheon NatwestMarkets INGFinancialMarkets Commerzbank KernConsulting CEBR OxfordEconomics Nomura DaiwaCapitalMarkets ExperianEconomics Downside Annualearnings(annual%change) -10% -8% -6% -4% -2% 0% 2% Upside Maximum Median Mean Base Minimum Downside 2019YoYGrowth Commercial HPI andaverage earnings forecasts Growth in Commercial property prices forecasts for 2019 Growth in average annual earnings forecasts for 2019 Source : YFEF, HMT, and Investment Property YFEF’s 2019 scenario for growth in office commercial property values have been benchmarked against 27 other institutions sourced from the Investment Property Forum Consensus forecasts (only the average and range are available, the individual forecasts are not publicly available). The growth in office capital values for 2019 is shown in Figure 17, and ranges from -8% to +2%. Though the cost of imported raw materials rose sharply in 2017, reflecting the impact of sterling depreciation in 2016, this effect has faded. We estimate that there is still some spare capacity in the economy, which should continue to weigh on earnings growth and profit margins for the next few years, so market cost risk should remain low Fabian Society |YF Finance & Economics | 17
- 18. -1% 0% 1% 2% 3% 4% 5% Upside BeaconEconomic Forecasting Commerzbank DaiwaCapital Markets Economic Perspectives Pantheon ITEMClub Base CapitalEconomics Heteronomics OxfordEconomics Downside Growth(Q4onpreviousQ4,%) 2019 Upside ExperianEconomics BeaconEconomic Forecasting DaiwaCapitalMarkets Pantheon ITEMClub KernConsulting Commerzbank Heteronomics Base OxfordEconomics CapitalEconomics EconomicPerspectives Downside 2020 Housing price forecasts Comparisonof YFEF’s housing price scenarios with 2019, 2020 central forecasts of other institutions Source: YFEF and HMT YFEF’s Base and Downside is relatively more pessimistic than their peers. This forecast is influenced by UK house prices dropping for the second month in a row, falling 0.2% in July as continued economic uncertainty led to a reduction in sales, HMRC data indicated that UK home sales are on the downturn, with sales in June coming in 16.5% lower than the same month in 2018 at 84,490, though mortgage approvals remained steady at around 66,000 according to figures from the Bank of England. Fabian Society |YF Finance & Economics | 18
- 19. -2 0 2 4 6 8 10 2014 2015 20162017 2018 2019 2020 2021 2022 2023 HPI-YoYGrowth(%) Base Upside Downside HMT Consensus - Average HMT Consensus - Lowest (Medium-Term forecast) HMT Consensus - Highest (Medium-Term forecast) Oxford Economics Historical housing price vs minimum of Upside scenarios and maximum of Downside scenarios -10 -5 0 5 10 15 20 25 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 HPIannualgrowth(%) Historial HPI Downside Base Upside Upside Max Downside Min 48% - occurrence ratio for HPI equal to or above 8.5% 11% - occurrence ratio for HPI equal to or less than -1.6% Housing price forecasts Medium term housing price forecasts for the next five years Source : YFEF, HMT, Oxford Economics and ONS Fabian Society |YF Finance & Economics | 19
- 20. EconomicPerspectives Upside Heteronomics BeaconEconomicForecasting CapitalEconomics CEBR SocieteGenerale JPMorgan KernConsulting Pantheon Nomura DeutscheBank Downside Base ITEMClub ExperianEconomics INGFinancialMarkets SantanderGBM BloombergEconomics OxfordEconomics NatwestMarkets DaiwaCapitalMarkets BankofAmerica-MerrillLynch Commerzbank 2020 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% EconomicPerspectives Upside CEBR CapitalEconomics CBI KernConsulting ExperianEconomics SantanderGBM Nomura NatwestMarkets INGFinancialMarkets Base ITEMClub Downside OxfordEconomics BeaconEconomic Forecasting Pantheon Commerzbank Citigroup BloombergEconomics SocieteGenerale JPMorgan DeutscheBank DaiwaCapitalMarkets BankofAmerica-Merrill Lynch Heteronomics CPI%,Q4 2019 CPI forecasts Comparison ofYFEF’s CPI scenarios with 2019, 2020 central forecasts of other institutions Source: YFEF and HMT Higher inflation for the Downside scenarios have been justified by YFEF envisaging a cliff-edge Brexit with no deal and higher import prices. This could lead inflation to be above target. YFEF would normally expect the Upside to have higher inflation than the Base case, reflecting stronger demand in the economy. Our scenarios for 2020 indicate slightly higher levels of inflation than other institutions forecasts. This stems from welfare freeze coming to an end and economic recovery (consistent with our scenario for GDP annual growth rates). Fabian Society |YF Finance & Economics | 20
- 21. 0 1 2 3 2014 2015 20162017 2018 2019 2020 2021 2022 2023 CPIAnnualGrowth(%) Downside Base Upside Oxford Economics HMT Consensus - Average HMT Consensus - Lowest (Medium-Term forecast) HMT Consensus - Highest (Medium-Term forecast) 0 1 2 3 4 5 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 CPIannualgrowth(%) Historical CPI Upside Base Downside Upside max Downside min 18% - occurrence ratio for CPI equal to or above 2.8% 11% - occurrence ratio for CPI equal to or less than 1.0% CPI forecasts Medium term CPI forecasts for the next five years Source : YFEF, HMT, Oxford Economics and ONS YFEF’s Downside scenario shows a relatively high CPI inflation rate in the Downside taking into account of the following scenarios: • Tariffs and other barriers to trade between the UK and EU are introduced suddenly from 2019Q4 onwards increasing the price of raw materials; and, • This is further exacerbated by depreciation of sterling as demand for the pound falls within FOREX. YFEF’s Downside and Upside CPI inflation rates have occurred between 1.0 to 2.8% (respectively) which is in line historical frequencies seen since inflation targeting was adopted in 1992. Historical CPI vs minimum of Upside scenarios and maximum of Downside scenarios Fabian Society |YF Finance & Economics | 21
- 22. -1 0 1 2 3 4 5 2015 2016 20172018 2019 2020 2021 CPI(annual)% Min - BoE Lowest [15- 26%] Low - Medium [11- 16%] Central [13- 23%] Medium - Optimistic [13- 22%] Optimistic [12- 14%] Highest [9- 29%] Upside Base Downside Mode BoE Comparison of YFEF’s CPI forecast scenarios vs BoE’s GDP Fan Chart CPI forecasts YFEF’s scenario have been compared against the latest Bank of England (BoE) CPI forecast fan chart. The fan chart shows that the three scenarios from YFEF are within a narrow range of the BoE’s fan. Fabian Society |YF Finance & Economics | 22
- 23. THANK YOU Lead authorand economist Amarvir Singh-Bal Contributors Contact address: economynetwork@youngfabians.org.uk Communications Gregory Gillette Economist and forecaster Guilherme Rodrigues President Jeevun Sandher