THE PERFORMANCE OF THE UK
ECONOMY
Geoff Riley
Tutor2u
The Economic Cycle - Growth in UK National Output
Annual percentage change in GDP at constant prices
6
6
Percent
Sustained growth….. NICE 1990s
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
Source: Reuters EcoWin
United Kingdom - Potential GDP and Trend Growth
3.00
3.00
2.75
2.75
2.50
2.50
Trend Growth Rate
2.25
2.25
2.00
1.75
1.75
1.50
1.50
1.4
1.4
1.3
1.3
1.2
1.2
1.1
1.1
1.0
1.0
0.9
0.9
0.8
0.8
0.7
0.7
Potential GDP
0.6
0.6
0.5
0.5
76
78
80
thousand billions
2.00
Real GDP (thousand billions)
Percent
Source: OECD World Economic Outlook
82
84
86
88
90
92
94
96
98
00
02
04
06
08
Source: Reuters EcoWin
1.4
1.4
1.3
1.3
1.2
1.2
1.1
1.1
1.0
1.0
0.9
0.9
0.8
0.8
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
thousand billions
Output Gap = Actual GDP - Potential GDP, measured as a percentage of potential GDP source:
Percentage of potential GDP
£trillion at constant prices (thousand billions)
UK Real GDP and Output Gap
09
Source: Reuters EcoWin
The Components of Aggregate Demand
C+I+G+X-M
£bn per year at constant 2003 prices
800
700
800
Consumer led growth (2/3 of UK economy)
– fuelled by debt, equity withdrawal, low
savings, confidence, low unemployment
700
600
Consumer Spending
500
500
billions
2003 GBP (billions)
600
Imports
400
400
300
300
Exports
Government spending
200
200
Investment
100
100
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
Source: Reuters EcoWin
Household Savings Ratio
Household savings ratio
Percentage of disposable income that is saved, quarterly data
Percent
14
14
13
13
12
12
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
Source: Reuters EcoWin
Savings, Interest Rates and Unemployment
15
Two factors that influence the rate at which households save their disposable income
Savings,
unemployment and interest rates
Household savings ratio (% of disposable income)
Base Interest Rate
Unemployment (Claimant count, seasonally adjusted)
14
Percent
13
15
14
13
Savings Ratio
12
12
11
11
10
10
9
9
8
8
7
7
6
6
5
Unemployment
5
Interest rates
4
4
3
3
Over-confidence?
2
2
1
1
0
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Average house prices in the UK
average prices per month, £s, source: Halifax plc
An end
to the housing boom?
£s
200000
200000
175000
175000
150000
150000
125000
The key thing is what is
going to happen now? Soft
landing? Crash?
125000
‘Britain, because of its
exceptional dependence on
finance and housing, will suffer
more than other big economies
and certainly more than the
United States’ (Kaletsky, 02-08)
100000
75000
100000
75000
50000
50000
97
98
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Annual Growth of Consumer Borrowing
Consumer borrowing
Annual percentage change in consumer borrowing in the UK
20.0
20.0
18.0
18.0
Percent
Consumer credit
16.0
16.0
14.0
14.0
12.0
12.0
10.0
10.0
Total lending
8.0
8.0
6.0
6.0
4.0
Lending secured on property
4.0
2.0
2.0
0.0
0.0
97
98
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Insolvencies and Consumer Debt Outstanding
Individual insolvencies, seasonally adjusted
The
debt mountain
30000
Personal Insolvencies (number per quarter)
25000
20000
20000
15000
15000
10000
10000
5000
5000
0
0
225
225
200
200
175
175
150
150
125
125
100
100
75
75
97
98
99
00
01
02
03
04
05
06
billions
Outstanding Consumer Credit £bn
£ (billions)
Insolvencies
25000
30000
07
Source: Reuters EcoWin
Nationwide UK Consumer Confidence Index
Index May 2004 = 100
Confidence
on the slide
2004:05=100
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75
75
May
Aug
04
Nov
Feb
May
Aug
05
Nov
Feb
May
Aug
06
Nov
Feb
May
Aug
07
Nov
Feb
08
Source: Reuters EcoWin
Unemployment in the UK Economy
Unemployment
people aged 16-59 (women) / 64 (men), seasonally adjusted
per cent of the labour force
11
11
10
10
9
9
8
8
7
7
Labour Force Survey
6
6
5
5
4
4
Claimant Count
3
3
2
2
1
1
0
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
UK Employment
A record level of employment
All aged 16 and over, seasonally adjusted, source: Labour Force Survey
29.5
Inward migration
29.5
29.0
Public sector spending boom
29.0
Rise of part-time work
28.5
Persons (millions)
30.0
28.5
28.0
28.0
27.5
27.5
27.0
27.0
26.5
26.5
26.0
26.0
25.5
25.5
25.0
25.0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
millions
30.0
07
Source: Reuters EcoWin
The Changing Pattern of Employment
Persons (millions)
7.0
Distribution, hotels and restaurants
7.5
7.0
6.5
6.5
6.0
6.0
5.5
5.0
5.5
De-industrialisation
Banking, finance and insurance
4.5
Manufacturing industries
Since 1997, UK manufacturing has declined from
17 per cent to 13 per cent of gross value added
and from 17 per cent to 11 per cent of total
employment.
5.0
4.5
4.0
4.0
3.5
3.5
3.0
3.0
97
98
99
00
01
02
03
04
05
06
millions
7.5
Millions, seasonally adjusted
But big changes
in the pattern of jobs
07
Source: Reuters EcoWin
UK Output of Textiles & Textile Products
2003=100
Textiles hit by
globalisation
160
150
150
140
140
130
130
120
120
110
110
100
100
90
90
80
80
97
98
99
00
01
02
03
04
05
06
07
millions
2003=100 (millions)
160
08
Source: Reuters EcoWin
UK manufacture of motor vehicles and engine parts
Index of output, at Constant Prices, Seasonally adjusted
But car
making still very strong
2003=100
110
110
105
105
100
100
95
95
90
90
85
85
80
80
97
98
99
00
01
02
03
04
05
06
07
Source: Reuters EcoWin
Extraction of Oil & Gas
Index of output, 2001=100, seasonally adjusted data
But oil
and has is past its peak
130
120
120
110
110
100
100
90
90
80
80
70
70
60
60
millions
2003=100 (millions)
130
97
98
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Consumer Price Inflation for the UK Economy
percentage change in the Consumer Price Index
Inflation –Annual
keeping
a lid on consumer prices
9
9
Inflation targeting started in 1992!
8
8
7
7
6
6
Percent
BoE made independent in 1997
5
5
4
4
3
3
2
2
1
1
0
0
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07 08
Source: Reuters EcoWin
Consumer Price Inflation for Goods and Services
Annual Percentage Change, source: ONS
Goods
and services
6
Inflation in Services
5
Percent
6
5
4
4
3
3
Goods and Services Together
2
2
1
1
0
0
-1
-1
Inflation in Goods
-2
-2
-3
-3
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Retail Price and Consumer Price Inflation in the UK
Annual percentage change in the retail price index and CPI
Retail
price index and the CPI
5.0
4.5
4.5
4.0
4.0
3.5
Percent
5.0
All items retail price index (RPI)
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
Consumer price index
0.5
0.5
0.0
0.0
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Earnings and Prices
percentage change in earnings and consumer prices
PayAnnual
and
prices – real incomes
6
Percent
5
6
5
Average Earnings
4
4
3
3
2
Consumer price inflation
2
Is this valid? CPI is flawed.
Tight control of inflation,
decline in collective bargaining,
low inflation + people not
understanding personal RPI
1
1
0
0
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
The Economist Commodity Price Index
325
Inflationary threats from overseas
300
325
300
Industrial Metals
275
275
250
250
225
225
Index
All Commodities
200
200
175
175
150
150
125
125
Food
100
100
04
05
06
07
08
Source: Reuters EcoWin
West Texas Intermediate Crude Oil
Crude oil
US dollars per barrel, one month futures price, NYMEX
USD/Barrel
130
130
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
Jan
Feb
Mar
Apr
May
Jun
Jul
07
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr May
08
Source: Reuters EcoWin
Monetary Policy - Base Rate of Interest for the UK
Percentage, since May 1997 base rates have been set by the Bank of England
Interest
rates – BoE policy rates
Percent
8.0
8.0
7.5
7.5
7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
97
98
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Trying to Stem the Credit Crunch
Le Credit Crunch
Percentage, since May 1997 base rates have been set by the Bank of England
Percent
7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
London Interbank 3-Month Interest Rate
5.0
5.0
4.5
4.5
4.0
4.0
Bank of England Base Rate
3.5
3.5
3.0
3.0
Jan
May
Sep
03
Jan
May
Sep
04
Jan
May
Sep
05
Jan
May
Sep
06
Jan
May
Sep
07
Jan
May
08
Source: Reuters EcoWin
Interest Rates for the Euro Zone, the UK and the USA
Per Cent
Interest rates
elsewhere
8.0
8.0
Bank of England Rates
Percent
7.0
7.0
USA Interest Rates
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
Euro Zone Interest Rates
1.0
1.0
0.0
0.0
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
Base Interest Rates and UK GDP Growth
Growth and interest rates
Percentage, since May 1997 base rates have been set by the Bank of England
6.0
6.0
5.5
5.5
Percent
Base interest rates
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
Real GDP growth
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
UK Balance of Trade in Goods
Britain’s trade deficit
Balance of exports minus imports of goods at current prices, £ billion
0
-10
-10
-20
-20
-30
-30
-40
-40
-50
-50
-60
-60
-70
-70
-80
-80
-90
-90
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
billions
GBP (billions)
0
07
Source: Reuters EcoWin
UK Balance of Trade in Selected Goods
Annual trade balance, £ billions
10
10
Crude oil
Semi-manufactures
0
Food, beverages & tobacco
-10
-20
-20
-30
-30
billions
GBP (billions)
-10
0
-40
-40
Finished manufactures
-50
-50
-60
-60
80
82
84
86
88
90
92
94
96
98
00
02
04
06
Source: Reuters EcoWin
UK Balance of Trade in Services
Trade in Services
Balance of exports minus imports of services, current prices, £ billion
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
billions
GBP (billions)
40
07
Source: Reuters EcoWin
UK Balance of Trade in Services
Quarterly trade balance, seasonally adjusted
8
8
7
7
6
6
5
5
4
4
3
Financial services
2
2
1
1
Royalties and license fees
0
billions
GBP (billions)
3
0
Communications
-1
-1
Transportation
-2
-2
-3
-3
Travel
-4
-4
-5
-5
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
Source: Reuters EcoWin
Components of the UK Balance of Payments
Annual balances for each component, £ billion
The
Current Account
50
25
25
Trade in Services
Investment income
0
0
Transfers
Current account
-25
Trade in Goods
-50
-75
-25
billions
£ Billion (billions)
50
-50
Britain’s current
account deficit in
2007 was £53bn
-75
-100
-100
97
98
99
00
01
02
03
04
05
06
07
Source: Reuters EcoWin
UK, Exports to and Imports from China
Trade with China
£ billion per month, trade in goods and services
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
Imports from China
0.75
billions
GBP (billions)
2.00
0.75
0.50
0.50
Exports to China
0.25
0.25
0.00
0.00
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: Reuters EcoWin
UK Government Spending and Taxation
Measured as a percentage of national income
Government
spending and taxation
45
45
Government Spending
44
44
Per cent of GDP
43
43
42
42
Total Tax Revenue
41
41
40
40
39
39
38
38
37
37
97
98
99
00
01
02
03
04
05
06
07
08
09
Source: Reuters EcoWin
The UK Government Budget Balance
The Budget Deficit
20
20
10
10
0
0
-10
-10
-20
-20
-30
-30
-40
-40
-50
-50
billions
£ (billions)
Budget Balance = Tax revenues - Total Government Spending, £ billion
97
98
99
00
01
02
03
04
05
06
07
Source: Reuters EcoWin
UK Government Net Debt
£ billion at current prices, monthly data
A rising
national debt
550
525
525
500
500
475
475
450
450
425
425
400
400
375
375
350
350
325
325
300
300
00
01
02
03
04
05
06
07
billions
GBP (billions)
550
08
Source: Reuters EcoWin
Dollar-Sterling Exchange Rate
US dollars per £1, daily closing exchange rate
Sterling
– dollar exchange rate
GBP/USD
2.15
2.15
2.10
2.10
2.05
2.05
2.00
2.00
1.95
1.95
1.90
1.90
1.85
1.85
1.80
1.80
1.75
1.75
1.70
1.70
Jan
Apr
Jul
04
Oct
Jan
Apr
Jul
05
Oct
Jan
Apr
Jul
06
Oct
Jan
Apr
Jul
07
Oct
Jan
Apr
08
Source: Reuters EcoWin
Euro - Sterling Exchange Rate
Value of one Euro, daily closing exchange rate
Sterling
– Euro Exchange Rate
Pence per Euro1
0.825
0.825
0.800
0.800
0.775
0.775
0.750
0.750
0.725
0.725
0.700
0.700
0.675
0.675
0.650
0.650
Jan
Mar
May
Jul
06
Sep
Nov
Jan
Mar
May
Jul
07
Sep
Nov
Jan
Mar
08
Source: Reuters EcoWin
A looming economic crisis?