6. What is the average house price in Watford?
£426,000
8. 18.2%
15.28%
7.43%
4.27%
3.29%
3.15%
2.55%
2.55%
2.29%
2.24%
1.93%
1.82%
1.76%
1.6%
1.4%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
China
United States
India
Japan
Germany
Russia
Indonesia
Brazil
United Kingdom
France
Mexico
Italy
Turkey
Korea
Spain
Countries with the largest proportion of global gross domestic
product (GDP) based on Purchasing Power Parity (PPP) in
2017. Source: IMF World Economic Outlook.
9. There are many uncertainties in macro at the moment –
make sure the examiner is aware that policy operates in
a highly uncertain domestic and external environment.
13. Economic growth
2014: 2.9%
2015: 2.7%
2016: 1.8%
2017: 1.7%
2018: 1.4%
2019?:
BoE says there is a
25% chance of
recession this year
-8
-6
-4
-2
0
2
4
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
UK Economic Growth, annual percentage change in
real GDP
Quarter on same quarter a year ago (right hand side)
14. UK economic growth relative to other G7 UK inflation relative to other G7
Source: www.niesr.ac.uk/sites/default/files/publications/NIESR%20Report%20Brexit%20-%202018-11-26.pdf
15. UK output and decomposition of estimated potential supply (LRAS)
Date Actual output
Potential
supply =
Potential
productivity
Potential
labour supply
1998-07 2.9 2.9 2.2 0.7
2008-10 -0.9 0.2 0.1 0.1
2011-14 2.0 1.6 0.1 1.5
2015-18 1.9 1.7 0.7 1.0
2018-22 1.6 1.4 0.9 0.5
16. Labour migration
Net migration
continues to add to the
population of the UK.
Over 2018, 627,000
people moved to the
UK (immigration) and
345,000 people left the
UK (emigration).
Non-EU migration is at
highest for 15 years
17. -10
-8
-6
-4
-2
0
2
4
6
8
10
Business investment in the UK, Percent quarter on quarter growth
Business investment has now fallen for four
consecutive quarters – the first such instance
since 2009 –driven mainly by declines in
transport equipment as well as IT
18. 60
80
100
120
140
160
180
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42
Real business investment in previous UK recessions and recoveries
1979 Q4 1990 Q2 2008 Q1
Index = 100 at start of
the recession
Investment accounted for 42% of China's GDP in 2017, the
highest share of any major economy, while household
consumption accounted for about 38%. In comparison,
investment accounts for 17% of UK GDP, consumption 66%.
(Source: Deloitte)
21. Household debt
and consumer
credit
Average UK household
debt (including
mortgages) was
£58,540 in June 2018
-6
-4
-2
0
2
4
6
8
10
12
14
1/1/11
6/1/11
11/1/11
4/1/12
9/1/12
2/1/13
7/1/13
12/1/13
5/1/14
10/1/14
3/1/15
8/1/15
1/1/16
6/1/16
11/1/16
4/1/17
9/1/17
2/1/18
7/1/18
Annual growth of consumer credit, percent, source:
Bank of England
Credit cards Other loans and advances Total
22. To the nearest £50,000, what is the average house
price in the UK economy?
38. 26.6
24.8
21.8
21.8
21.6
21.4
21.2
20.9
20.7
20.3
18.4
18.2
17.8
0 5 10 15 20 25 30
Northern Ireland
North East
North West
Scotland
London
West Midlands
Yorkshire and The Humber
Wales
UK
East Midlands
South East
East
South West
Economic inactivity rates: Dec 2018 to Feb 2019, per cent
43. 0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Fixed rate, greater
than two years
Fixed rate, less than
or equal to two years
Standard variable
rate
Bank Rate tracker Other floating rate
Distribution of mortgage lending in the UK, per cent of total mortgage loans,
Source: Bank of England Inflation Report
Jan. 2011 Sep. 2017
52. UK external trade
(X-M)
In 2018, the UK’s
exports of goods and
services totalled £635
billion and imports
totalled £664 billion.
This meant a trade
deficit of £29 billion.
-8
-6
-4
-2
0
2
4
6
8
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Balance of Trade in Goods and Services for
the UK , percent of GDP
Trade in services balance Trade in goods balance
53. Current account
(% of GDP)
2014: -4.9%
2015: -4.9%
2016: -5.2%
2017: -3.7%
2018: -3.3%
-12
-10
-8
-6
-4
-2
0
2
4
6
8
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Components of the UK Current Account
(percent of GDP, annual data)
Secondary income balance Primary income balance
Trade in services balance Trade in goods balance
54. How to finance a current account deficit
-60
-40
-20
0
20
40
60
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Outward investment and inward investment for the UK, per cent of GDP
Outward UK Investment Inward UK Investment
56. International
competitiveness
UK was ranked 8th in the 2018 Global
Competitiveness Rankings published
by the World Economic Forum. This
makes the UK the fourth most
competitive economy in Europe
behind Germany, Switzerland and the
Netherlands.
The 2018 WEF report flagged up relative weaknesses in
human capital in the UK including a ranking of 47th for
internal labour mobility. Ranked 28th for quality of
vocational education and 32nd for digital skills. Ranked
59th for pupil-to-teacher ratio in primary education
Given the fog of Brexit it is important to stand back and look at the bigger picture. Adjusting for purchasing power parity, the UK is now the 9th biggest economy in the world with a 2.3% share of measured global GDP. Both Indonesia and Brazil (on a PPP basis have overtaken the UK using data for 2017). Policy has in many ways become fixated with the Brexit pathway but 98% of the world’s annual output does not come from the UK.
Global and UK policy uncertainty remains high
Growth of 1.4% in 2018 was the weakest pace of growth since 2012. Clearly Brexit uncertainty is having an impact but so too are external factors such as the slowing Chinese economy and signs that the US economy (the fastest growing developed country in 2018) is also seeing a softening of growth which in turn is a reflect of the Fed’s decision to raise interest rates. Germany – the anchor country for the EU is also experiencing a growth slowdown and overall, world trade is expanding less quickly.
These two charts taken from a recent Brexit analysis from the National Institute of Economic and Social research show that UK economic growth relative to other G7 countries has slowed down and that our inflation rate has been relatively high. In large part, this is the direct result of the steep depreciation of sterling post June 2016 which increased the prices of imported goods and services.
The UK economy was the fifth-fastest growing G7 economy in 2018 with signs of a loss of momentum in the wider global economy
This table comes from the Bank of England’s latest inflation report (February 2019) and is important for those who fear that the trend growth rate for the UK is declining. The bank now estimates that the growth of potential supply (or long run aggregate supply) has weakened to 1.75 between the years 2015-18 and will dip further to just 1.45% over the next four years. Productivity growth may improve (although it contributes less to potential output than from 1998-2007 but the noticeable drift is in the rate of growth of the potential labour supply. Net inward migration is forecast to slow down and the employment rate is at an all-time high, suggesting some constraints on getting more people into the active labour labour force.
We've still got net immigration but the composition of it has changed: the number of EU migrants has fallen to the lowest level in 10 years, but the number of non-EU migrants is at its highest for 15 years. Either way the size of the working population is rising, and this is good for potential growth.
One important sign that the UK economy is slowing down is that business capital investment has fallen in each of the last four quarters and there have also been some high profile announcements especially in the car industry that future investment in capacity or manufacturing new car models is being postponed or shelved.
This is the second in a series of short revision videos updating students on key recent developments in the UK economy in 2019. In this video we look at developments in household spending and saving. What is happening to consumer confidence, borrowing and house prices? Should we be worried about the steep fall in the savings ratio?
Consumer confidence is dropping – it is hard not to make a link here with the wider security surrounding Brexit – but developments in the housing market might also be contributing
Household debt peaked in Q2 2008 at 148% of household disposable income. It then declined to 127% by late 2015. It has remained steady at around 135% of GDP in recent times. The average UK household debt (including mortgages) was £58,540 in June, according to financial charity The Money Charity. Overall in the UK, people owed nearly £1.6 trillion at the end of June 2018, up from £1.55tn a year ago. he cost of servicing debt for households remains relatively low, due to very low interest rates including mortgage rates. But there are widespread concerns about the surge in unsecured consumer borrowing where the ability to repay is highly sensitive to changes in interest rates, real incomes and employment. Consumer credit includes dealership car finance, personal loans, and credit cards. Commercial banks provide around 80 percent of lending in credit and personal loans, but less than half of dealership car finance.
The average UK property price increased from £224,968 to £226,234 in the year to 1 February 2019, a 0.6% increase.
This has also been reflected in the household saving ratio, which has been on a downward trend in recent years. Having peaked at 10.7% in 2009 following the effects of the financial crisis as households rebuilt their financial positions, the saving ratio has trended downwards, which has been particularly pronounced in the last couple of years. This reached a record low of 3.9% in 2017. Whilst there has been a slight increase to 4.2% in 2018, this is still low by historical standards – the saving ratio in 2017 and 2018 are the two lowest since records began in 1963
This is the third in a series of short revision videos updating students on key recent developments in the UK economy in 2019. In this video we take a quick look at the latest data for inflation and also the major developments in the UK labour market.
The Consumer Prices Index (CPI) is the main measure of inflation. It is the measure used for the Bank of England’s 2% inflation target.
The post-referendum depreciation of sterling caused an increase in inflation, depressing private consumption because of the impact on real incomes. Inflation is now falling back towards target and, with nominal earnings increasing in excess of 3 per cent, for many people in work real wages are now starting to rise again after a lengthy period of stagnation.
The CPI inflation rate was 1.9% in March 2019, unchanged from February.
In its February Inflation Report, the MPC downgraded its forecast for GDP growth in 2019 from 1.7% to 1.2% and lowered its expectations for inflation. The MPC targets an inflation rate of 2%. These forecasts assume a smooth Brexit transition.
500,000 young people aged 16-24 were unemployed, up slightly from the previous quarter but down 35,000 from the year before. The unemployment rate for 16-24 year olds was 11.5%.
The UK unemployment rate was estimated at 3.9%; it has not been lower since November 1974 to January 1975.
347,000 people had been unemployed for over 12 months, down slightly from the previous quarter and 17,000 fewer than a year ago.
This is the fourth in a series of short revision videos updating students on key recent developments in the UK economy in 2019. In this video we update students on monetary and fiscal policy including the latest data on interest rates, quantitative easing, the budget deficit, national debt and yields on government bonds.
Monetary policy seems to have become becalmed in recent years with barely a ripple in the chart showing the main monetary policy interest rate. The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to leave interest rates unchanged at 0.75% at its November policy meeting. The last change occurred at August’s meeting when the MPC raised rates from 0.5% to 0.75%. Interest rates have moved more decisively in the United States where the Federal Reserve has moved rates to 2 per cent – still low by historical standards but their highest rate for the decade since the Global Financial Crisis.
The Bank of England’s quantitative easing (QE) programme, where the Bank creates new money to buy financial assets, remains active and unchanged. QE now totals £445 billion of assets, £435 billion of which are government bonds and £10 billion of commercial debt. Mark Carney has agreed to extend his term as Governor of the Bank of England. He will now remain until end January 2020.
60 percent of mortgages are on fixed rates – great contextual point to add into any essay on monetary policy
General government gross debt was £1,837.5 billion at the end of 2018, equivalent to 86.7% of gross domestic product (GDP) and 26.7 percentage points above the reference value of 60% set out in the Protocol on the Excessive Deficit Procedure.
In 2018, UK general government deficit was £32.3 billion, equivalent to 1.5% of gross domestic product (GDP) (Table 2 and Figure 2); the lowest annual deficit since 2001. This represents a decrease of £5.8 billion compared with borrowing in 2017.
This is the fifth in a series of short revision videos updating students on key recent developments in the UK economy in 2019. In this video we bring students up to date with the latest data concerning the UK’s external trade and current account with the rest of the world.
Britain continues to run a sizeable trade deficit in goods and services.
A deficit of £138 billion on trade in goods was partially offset by a surplus of £108 billion on trade in services in 2018
The current account, which includes investment income and transfers as well as trade, saw a deficit of £68 billion in 2017, compared with £103 billion in 2016. The current account deficit was 3.3% of GDP in 2017 compared with 5.2% in 2016.
The need to finance the large current account deficit makes the UK economy vulnerable to shifts in investors' preferences for UK assets. At present, the UK remains a favoured venue for inflows of foreign capital which makes it relatively straightforward for the UK to finance an external deficit.
Difficult post-Brexit headwinds might change this especially if there is a further decline in sterling and multinationals decide to curtail their planned capital investment in Britain.
The UK was ranked 8th in the 2018 Global Competitiveness Rankings published by the World Economic Forum. This makes the UK the fourth most competitive economy in Europe behind Germany, Switzerland and the Netherlands. The 2018 WEF report flagged up relative weaknesses in human capital in the UK including a ranking of 47th for internal labour mobility ( geographical mobility of labour is hampered by unaffordable housing). Ranked 28th for quality of vocational education and 32nd for digital skills. Ranked 59th for pupil-to-teacher ratio in primary education, Britain was ranked 22nd for research and development spending as a percentage of GDP.