Global & UK Macroeconomic
Outlook
Andrew Goodwin
agoodwin@oxfordeconomics.com
5th February 2014
2013 was much better than expected
UK: GDP
% year
3
1.8
2
1.0
0.9
1
0.0
0
-1
-2
-3
-4
GB13
-4.0
-5
-6
2009
2010
Source : Oxford Economics
2011
2012
2013
2013 was much better than expected
UK: GDP
% year
3
1.9
1.8 1.7
2
0.9 1.1
1
1.0
0.0 0.3
0
-1
-2
-3
-4
GB13
-4.0
GB14
-5
-6
-5.2
2009
2010
Source : Oxford Economics
2011
2012
2013
PMIs suggest 2013 may have been even better
UK: GDP vs composite PMI
% quarter
2.0
% balance
60
Composite PMI
(RHS)
1.5
GDP growth
(LHS)
1.0
55
0.5
0.0
50
-0.5
-1.0
45
-1.5
-2.0
40
-2.5
-3.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source : ONS/CIPS/Markit
35
The recovery has been horribly unbalanced
UK: Contributions to GDP growth, 2013
%pts
1.5
1.0
0.5
Residential
0.0
Business
-0.5
Other
-1.0
Consumer
spending
Investment
Source : Oxford Economics
Govt.
Inventories
consumption
Net trade
Where do we go from here?
 Limited room for consumers to further reduce the savings
ratio…
More confident consumers have been saving less
UK: Consumer confidence & unemployment
UK: Savings ratio
ILO unemployment rate,
% (inverted)
Confidence, % balance
% of household disposable income
10
0
5.0
-5
5.5
8
6.0
7
6.5
6
Consumer confidence
(LHS)
-10
-15
-20
7.0
-25
5
4
7.5
-30
3
-35
8.0
Unemployment
(RHS)
-40
-45
2007
9
2008
2009
Source : Gfk NOP / ONS
2010
2011
2012
2013
2
8.5
1
9.0
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2014
Source : ONS
Where do we go from here?
 Limited room for consumers to further reduce the savings
ratio…
 …but prospects for real wages are much improved
Skills shortages will boost wage pressures…
UK: BCC survey - recruitment difficulties
% of firms
85
80
Manufacturing
75
70
65
60
55
50
45
40
Services
35
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source : BCC
…allowing spending power to steadily improve
UK: Earnings & inflation
% year
7
Average earnings
6
Forecast
5
4
3
2
1
CPI inflation
0
-1
-2
-3
-4
-5
2002
2004
2006
Source: Oxford Economics
2008
2010
2012
2014
2016
Bank Rate to remain at 0.5% until mid-2015
UK: Interest rates
%
6
Forecast
5
10-year gilt
yield
4
3
2
1
Bank Rate
0
2002
2004
2006
2008
Source : Oxford Economics
2010
2012
2014
2016
2018
Where do we go from here?
 Limited room for consumers to further reduce the savings
ratio…
 …but prospects for real wages are much improved
 Housing should remain supportive without prices
entering bubble territory (outside of London)
Rising supply should keep a lid on house prices
UK: Construction orders - new housing
UK: House prices and transactions
£bn, 2005 prices
5.5
000's
500
5.0
450
4.5
Housing turnover
(LHS)
% change
30
F'cast
20
400
4.0
10
350
3.5
3.0
2.5
300
250
0
House prices
(RHS)
-10
2.0
200
1.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
150
-20
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source : ONS
Source: Oxford Economics
Where do we go from here?
 Limited room for consumers to further reduce the savings
ratio…
 …but prospects for real wages are much improved
 Housing should remain supportive without prices
entering bubble territory (outside of London)
 Increasing signs that firms are planning to ramp up
investment plans
Firms have continued to add to cash piles…
UK: Business investment
UK: PNFC deposits
£bn, 4QMA
35
% of GDP, 4QMA
31
34
30
33
32
29
28
27
31
26
30
29
25
24
28
23
27
2005 2006 2007 2008 2009 2010 2011 2012 2013
22
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source : ONS
Source : ONS
…but now confidence seems to be improving
UK: Confidence in profitability
UK: Investment intentions
% balance
% balance
40
60
Service sector
30
50
40
Service sector
20
30
10
20
10
Manufacturing sector
0
0
-10
-20
-30
-10
Manufacturing sector
-20
-30
-40
-50
1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: BCC
-40
1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: BCC
Where do we go from here?
 Limited room for consumers to further reduce the savings
ratio…
 …but prospects for real wages are much improved
 Housing should remain supportive without prices
entering bubble territory (outside of London)
 Increasing signs that firms are planning to ramp up
investment plans
 Improving global outlook will support stronger export
growth
Surveys and official export data have diverged
UK: Non-oil goods exports
UK: Export orders
%3m-on3m, yr ago
25
% balance
40
30
20
Non-EU
15
20
10
10
5
0
0
-10
-5
-10
-30
-15
-40
2009
Source : ONS
2010
2011
2012
Service sector
-20
EU
-20
2008
Manufacturing sector
2013
-50
1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: BCC
Stronger growth forecast in most markets…
World: GDP forecasts
% year
7.7
8
7
2013
6
2014
7.3
5
4
3.1
2.9
3
2
1.9
2.2
1.7 1.8
0.9
1
0
-0.4
-1
US
Eurozone
Source : Oxford Economics
Japan
China
World
…so firm pickup in exports is in prospect
UK: Exports & world trade
% year
16
Exports
(non-fuel goods)
Forecast
12
8
4
0
World trade
-4
-8
-12
-16
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source: Oxford Economics
Faster and more balanced growth in prospect
UK: Contributions to GDP growth
%pts
4.0
Consumer spending
Govt. consumption
Net trade
3.5
3.0
Investment
Inventories
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
19972007
2012
Source : Oxford Economics
2013
2014
2015
2016
2017
2018
UK forecast summary
Forecast for UK
(Annual percentage changes unless specified)
Domestic Demand
Private Consumption
Fixed Investment
Stockbuilding (% of GDP)
Government Consumption
Exports of Goods and Services
Imports of Goods and Services
GDP
Industrial Production
CPI
Current Balance (% of GDP)
Government Budget (% of GDP)
Short-Term Interest Rates (%)
Long-Term Interest Rates (%)
Exchange Rate (US$ per £)
Exchange Rate (Euro per £)
2012
2013
2014
2015
2016
2017
2018
1.2
1.5
0.7
0.3
1.6
1.1
3.1
0.3
-2.5
2.8
-3.7
-6.3
0.84
1.91
1.59
1.23
1.8
2.2
-2.2
0.9
0.4
1.1
0.8
1.9
0.1
2.6
-3.6
-5.5
0.50
2.44
1.56
1.18
2.2
2.2
6.5
0.6
0.8
3.1
1.9
2.6
2.8
1.7
-2.9
-5.3
0.53
3.11
1.57
1.21
2.2
2.2
6.3
0.5
-0.3
4.0
3.1
2.4
1.7
1.8
-2.3
-4.3
0.66
3.30
1.53
1.23
2.3
2.3
6.5
0.5
-0.9
5.2
4.0
2.6
1.6
1.7
-1.8
-3.2
1.57
3.59
1.55
1.27
2.2
2.5
5.9
0.5
-1.5
5.3
4.2
2.6
1.5
1.9
-1.5
-2.0
2.61
4.01
1.53
1.27
2.2
2.6
4.3
0.5
-0.7
4.6
3.7
2.5
1.3
2.0
-1.2
-0.8
3.65
4.48
1.52
1.27
Output gap is large and will close very slowly
UK: Output gap
% of potential output
4
3
2
1
0
-1
-2
-3
Oxford Economics
-4
OBR
-5
-6
1990
1994
1998
2002
Source : Oxford Economics, OBR
2006
2010
2014
2018
Risks to the outlook
 How will companies respond to the improving outlook?
 Will house prices spiral out of control?
 Will real wages start to pick up as the recovery continues
to gain momentum…
 …and what about productivity?
 Will the MPC hold its nerve?
 Are we underestimating the likely recoveries in advanced
economies?
 Will the Eurozone avoid deflation?
Alternative scenarios for the UK economy
UK GDP forecasts for alternative scenarios
% year
6
4
2
0
-2
-6
Baseline
Golden age
Eurozone deflation
-8
2002
2004
-4
2006
2008
Source : Oxford Economics
Forecast
2010
2012
2014
2016
2018