The UK Economy in 2018Tutor2uA Level

Macroeconomics

Economic growth

2014: 2.9%2015: 2.7%2016: 1.8%2017: 1.7%*2018: 1.4%

* IMF forecast published in Oct 2018

-8

-6

-4

-2

0

2

4

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

2014

Q1

2014

Q3

2015

Q1

2015

Q3

2016

Q1

2016

Q3

2017

Q1

2017

Q3

2018

Q1

UK Economic Growth, annual percentage change in real GDP

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

Growth and the Output Gap

The Office for Budget Responsibility’s currently estimates that trend UK growth is 1.5%. 100.0

105.0

110.0

115.0

120.0

125.0

130.020

03Q

1

2003

Q4

2004

Q3

2005

Q2

2006

Q1

2006

Q4

2007

Q3

2008

Q2

2009

Q1

2009

Q4

2010

Q3

2011

Q2

2012

Q1

2012

Q4

2013

Q3

2014

Q2

2015

Q1

2015

Q4

2016

Q3

2017

Q2

Index of Actual and Potential GDP for the UK Economy

Potential output Actual Output

Inflation

Data is for end of year2014: 1.0%2015: 0.1%2016: 1.2%2017: 3.0%2018: 2.3%

0

1

2

3

4

5

6

Feb-

08Au

g-08

Feb-

09Au

g-09

Feb-

10Au

g-10

Feb-

11Au

g-11

Feb-

12Au

g-12

Feb-

13Au

g-13

Feb-

14Au

g-14

Feb-

15Au

g-15

Feb-

16Au

g-16

Feb-

17Au

g-17

Feb-

18Au

g-18

Consumer Price Inflation, annual % change in prices

Unemployment

2014: 6.2%2015: 5.4%2016: 4.9% 2017: 4.4% 2018: 4.1%

0

2

4

6

8

10

12

14

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

Unemployment rate (aged 16 and over, seasonally adjusted)

UK external trade

In 2017, the UK’s exports of goods and services totalled £617 billion and imports totalled £641 billion. This meant a trade deficit of £24 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

UK current account(% of GDP)

2014: -4.9%2015: -4.9%2016: -5.2%2017: -3.7%2018: -3.5% -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

Interest rates and quantitative easing

Base interest rates have been at 0.75% since August

QE now totals £445 billion of assets, £435 billion of which are government bonds and £10 billion of commercial debt.

0

1

2

3

4

5

6

7

01/0

1/20

0401

/10/

2004

01/0

7/20

0501

/04/

2006

01/0

1/20

0701

/10/

2007

01/0

7/20

0801

/04/

2009

01/0

1/20

1001

/10/

2010

01/0

7/20

1101

/04/

2012

01/0

1/20

1301

/10/

2013

01/0

7/20

1401

/04/

2015

01/0

1/20

1601

/10/

2016

01/0

7/20

1701

/04/

2018

Bank Base Interest Rate for the United Kingdom

House prices

UK house prices, increased by 3.5% between September 2017 and September 2018.

Prices remain high relative to income, reflecting supply constraints.

100000

120000

140000

160000

180000

200000

220000

240000

2005

Jan

2005

Aug

2006

Mar

2006

Oct

2007

May

2007

Dec

2008

Jul

2009

Feb

2009

Sep

2010

Apr

2010

Nov

2011

Jun

2012

Jan

2012

Aug

2013

Mar

2013

Oct

2014

May

2014

Dec

2015

Jul

2016

Feb

2016

Sep

2017

Apr

2017

Nov

2018

Jun

UK average house price, £s

Government borrowing

The budget deficit fell below 2% of GDP in 2017-18

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

2018

-19

UK Cyclically Adjusted Fiscal Deficit and Public Sector Net Debt (per cent of GDP)

Cyclically-adjusted net borrowing (LHS) Public sector net debt (RHS)

Government Bond Yields

0

1

2

3

4

5

6

701

/01/

2000

01/1

2/20

0001

/11/

2001

01/1

0/20

0201

/09/

2003

01/0

8/20

0401

/07/

2005

01/0

6/20

0601

/05/

2007

01/0

4/20

0801

/03/

2009

01/0

2/20

1001

/01/

2011

01/1

2/20

1101

/11/

2012

01/1

0/20

1301

/09/

2014

01/0

8/20

1501

/07/

2016

01/0

6/20

1701

/05/

2018

10 Year UK Government Bond Yield (Per Cent)

Labour migration

Net migration of EU migrants into the UK is now at its lowest level since 2012. Since the 2016 EU referendum, net migration of EU citizens to the UK has fallen from around 200,000 to less than 100,000 per year

536 493552

644 638585 614

-352 -318 -316 -308 -311 -349 -344

184 175236

336 327243 271

-600

-400

-200

0

200

400

600

800

2012 2013 2014 2015 2016 2017* 2018*

Mig

ratio

n in

thou

sand

s

Inflow Outflow Net migration

International competitiveness

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, Ranked 22nd

for research and development spending as a percentage of GDP.

Labour productivity

Historically, UK labour productivity has grown by around 2% per year but since the 2008/2009 recession it has stagnated. Slow productivity growth remains a major policy issue for the UK economy. 70

75

80

85

90

95

100

105

1994

Q1

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

Measures of Labour Productivity in the UK, Index (Q4 2007=100)

Output per hour Output per worker

Sterling exchange rate index

60

65

70

75

80

85

90

95

100

105

110

01

-Jan

-07

01

-Ju

n-0

7

01

-No

v-0

7

01

-Ap

r-0

8

01

-Se

p-0

8

01

-Fe

b-0

9

01

-Ju

l-0

9

01

-De

c-0

9

01

-Ma

y-1

0

01

-Oct-

10

01

-Ma

r-1

1

01

-Au

g-1

1

01

-Jan

-12

01

-Ju

n-1

2

01

-No

v-1

2

01

-Ap

r-1

3

01

-Se

p-1

3

01

-Fe

b-1

4

01

-Ju

l-1

4

01

-De

c-1

4

01

-Ma

y-1

5

01

-Oct-

15

01

-Ma

r-1

6

01

-Au

g-1

6

01

-Jan

-17

01

-Ju

n-1

7

01

-No

v-1

7

01

-Ap

r-1

8

01

-Se

p-1

8

Monthly average effective exchange rate index, Sterling (Jan 2005 = 100)

1

1.1

1.2

1.3

1.4

1.5

18

/11

/20

16

18

/12

/20

16

18

/01

/20

17

18

/02

/20

17

18

/03

/20

17

18

/04

/20

17

18

/05

/20

17

18

/06

/20

17

18

/07

/20

17

18

/08

/20

17

18

/09

/20

17

18

/10

/20

17

18

/11

/20

17

18

/12

/20

17

18

/01

/20

18

18

/02

/20

18

18

/03

/20

18

18

/04

/20

18

18

/05

/20

18

18

/06

/20

18

18

/07

/20

18

18

/08

/20

18

18

/09

/20

18

18

/10

/20

18

18

/11

/20

18

Sterling against the Euro and the US Dollar

EUR USD

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

01/0

1/20

11

01/0

6/20

11

01/1

1/20

11

01/0

4/20

12

01/0

9/20

12

01/0

2/20

13

01/0

7/20

13

01/1

2/20

13

01/0

5/20

14

01/1

0/20

14

01/0

3/20

15

01/0

8/20

15

01/0

1/20

16

01/0

6/20

16

01/1

1/20

16

01/0

4/20

17

01/0

9/20

17

01/0

2/20

18

01/0

7/20

18

Annual growth of consumer credit, percent, source: Bank of England

Credit cards Other loans and advances Total

The UK Economy in 2018Tutor2uA Level

Macroeconomics