Transcript Document

UK Economic Outlook:
What will drive future growth?
Richard Holt
Head of Global Cities Research
[email protected]
25th November 2014
1
Recent trends
Data revisions have ‘improved’ UK’s growth
UK: GDP revisions , rebased Q1 2008 = 100
104
New
data
102
100
98
96
Old
data
94
92
2006
2007
2008
Source : Haver Analytics
2009
2010
2011
2012
2013
2014
Business momentum across sectors
UK: Purchasing managers surveys, % balance
65
Services business
activity
60
55
50
45
40
Manufacturing
activity
35
30
Construction
activity
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source : CIPS/Markit
Demand is strong & well balanced (domestically)
UK: Contributions to annual GDP growth
Q2 2014, %pts
Residential
1.5
1.0
Business
0.5
0.0
Government
-0.5
-1.0
Consumer
spending
Investment
Source : Haver Analytics
Govt.
Inventories
consumption
Net trade
2
Investment
Less need for catch up in business investment
UK: Business investment revisions
Rebased, Q1 2008 = 100
110
105
100
95
New
90
85
Old
80
75
70
2006
2007
2008
Source : Haver Analytics
2009
2010
2011
2012
2013
2014
But corporate profitability looking good
UK: British Chambers of Commerce survey confidence in profitability, % balance
60
Manufacturing
Services
40
20
0
-20
-40
-60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source : Haver Analytics
So manufacturers (others) plan to invest
UK: Manufacturing profitability expectations
and investment intentions, % balance
60
Profit expectations
40
20
0
Plant/equipment
investment intentions
-20
-40
-60
2001
2003
2005
2007
Source: Haver Analytics/BCC
2009
2011
2013
Fixed investment growing quite fast this year
 2013: up 3.2%
2014: up
8.5%
 Then gradually
slows to 4½%
growth by 2018
3
Trade
The Eurozone recovery has stalled
Eurozone: GDP, % year
6
Germany
4
France
2
0
-2
Italy
-4
-6
-8
1999
2001
2003
2005
2007
Source : Oxford Economics/Haver Analytics
2009
2011
2013
China is slowing down
China: Industrial production and PMI survey
% balance
%, y/y
65
25
Industrial
production
(RHS)
60
20
55
15
50
10
45
5
HSBC PMI survey (LHS)
40
2008
0
2010
2012
Source : Oxford Economics/Haver Analytics
2014
Those & other upsets are hurting UK exports
UK: British Chambers of Commerce export
orders, % balance
40
30
Services
20
10
0
-10
-20
Manufacturing
-30
-40
-50
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: BCC
Long-term view: China may continue to slow
Korea, Taiwan and China compared, % year
20
China 1979-2013
Taiwan 1951-2003
15
10
5
0
-5
Korea 1961-2013
-10
1961
1969
1977
1985
1993
Source : Oxford Economics/Haver Analytics
2001
2009
World economy: moderate long-term growth
World: GDP growth %
10.0
8.0
Developing
Economies
6.0
4.0
2.0
0.0
-2.0
-4.0
1996
Advanced
Economies
2000
2004
Source : Oxford Economics
2008
2012
2016
2020
2024
Exports weak this year but improve next
 Exports of goods & services 0.4% down this
year in real terms
2015 up 4.4%
 Subsequent
years 5% to
6% a year
growth
4
Consumption
2014 real incomes driven by rising employment
UK: Decomposing real income growth, %pts
7
6
Social benefits
5
4
Wage inflation
3
2
1
Employment
growth
0
Other income
-1
Income tax &
NICs
-2
-3
Price inflation
-4
-5
1998-07
2011
Source : Haver Analytics
2012
2013
2014(f)
In 2015 productivity gains will slow this down
UK: GDP, employment & productivity
% growth
4%
3%
2%
1%
0%
-1%
-2%
GDP
-3%
Employment
-4%
Productivity
-5%
-6%
2008
2009
Source : Oxford Economics
2010
2011
2012
2013
2014
2015
Evidence on wages growth v mixed
UK: Different measures of wage growth, % year
Differences from averages since 1998
(number of standard deviations)
7
6
3
2
5
4
1
0 of wage grow
Different
measures
UK: Different measuresUK:
of wage
growth,
% year
UK: Different
measures
of wage
% year
UK: Different
measures
of growth,
wage
% year
Differences from averag
Differences
fromgrowth,
averages
since
1998
3
2
-1 (number of stand
Differences
from
averages
since 1998
(number
of averages
standard
deviations)
Differences
from
since 1998
ures 1of wage
% year (number
standard
deviations)
7 of
(number
ofsector
standard
deviations)
7 growth,
Private
AWE growth
IDS wage settle
Private sector AWE growth
(LHS)
IDS wage
settlements
(LHS)(LHS) 3
7
3
Differences
averages
since
1998
Private
AWEsector
growth
(LHS)
IDS wage settlements
(LHS)
7fromsector
National
accounts
(LHS)
Agents' survey (
Private
AWE
growth (LHS)
IDS
wage
settlements
(LHS) -2 3
National
accounts
(LHS)
Agents'
survey
(RHS)
6
6
of accounts
standard
deviations)
0 (number
National
(LHS)
Agents' survey
2
BCC
survey
(RHS)
REC (RHS)
National
accounts
Agents'
survey
(RHS)
BCC survey
(RHS)(LHS)
REC(RHS)
(RHS)
6
6
3
2
BCC
survey
(RHS)
REC
th (LHS)
IDS
settlements
BCC
survey(LHS)
(RHS)
-3 2
5 (RHS)REC (RHS)
5 wage
-1
Agents'
survey (RHS)
5
1
5
4
4
2
1
REC (RHS)
-2
-4 1
4
4
0
3
2005 2006
2007 2008 2009 2010 3 2011 2012 2013 2014
1
0
0
3
3
2
2
-1
Source : Bank
of England
2
2
0
-1
-1
1
1
But fundamentals should push wages up
UK: Earnings growth & recruitment difficulties
% year
8
6
% balance
Average weekly earnings private sector
(LHS)
3
2
1
4
0
2
-1
-2
0
-2
BoE agents recruitment difficulties
(RHS)
-4
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source : Haver Analytics
-3
-4
-5
Meanwhile oil prices will help to keep inflation low
UK: Brent Crude oil price
$ per barrel
125
120
$ per barrel (LHS)
£ per barrel
80
£ per barrel (RHS)
75
115
110
70
105
65
100
95
60
90
55
85
80
50
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
Source : Haver Analytics
So sustained real wage growth in prospect
UK: Earnings & inflation, % year
6
Average earnings
5
Forecast
4
3
2
1
CPI inflation
0
-1
-2
2002
2004
2006
2008
Source: Oxford Economics
2010
2012
2014
2016
2018
Steady not spectacular consumer spending rises
 1.6% growth last year,
2.1% this year, then
2.3%, then 2.2%, 2.5%,
2.6%...
UK: Consumer spending (real), 2013=100
112
110
108
106
104
102
100
98
96
94
2013
2014
Source : Oxford Economics
2015
2016
2017
2018
5
Fiscal & monetary policies
2014/15: winners/losers from tax/benefit changes
UK: Cumulative impact of all tax & benefit
changes in 2014/15 as a % of 2014/15 income
%pts
Direct tax
Indirect tax
Tax credits & benefits
Overall
2
1
0
-1
-2
-3
1
2
3
Source : HM Treasury
4
5
6
7
Income decile
8
9
10
All
But big government spending cuts still to come
UK: Departmental current spending 2006-07 to 2018-19
8
6
4
2
0
-2
-4
06-07
08-09
10-11
12-13
Source : Oxford Economics/HMT/OBR
14-15
16-17
18-19
However, MPC remains dovish
UK: MPC sentiment tracker
More
hawkish
2 votes for a rate
hike & Carney
Sunday Times
interview
Carney Mansion
Hawkish July minutes
House speech & Miles & Carney Edinburgh
Times interview
speech
Weale FT interview
Forward guidance v2
launched
More
dovish
Feb
Mar
September
minutes
Carney @ TSC
'unreliable boyfriend'
Dovish Inflation
Report
Apr
May
Source : Oxford Economics
Jun
Haldane
speech
Dovish Inflation
Report
Jul
Aug
November
minutes
Very dovish
Inflation Report
Sep
Oct
Nov
So first interest rate hike a good way off
UK: Nominal interest rates, %
7
Short rates
Forecast
6
5
Long rates
4
3
2
1
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: Oxford Economics
Government spending is going negative
Government consumption
rises 1% this year, flat in
2015, then steadily falls by
about 1% a year for several
years at least
6
Fundamentals
Exports: huge reliance on net exports of services
Exports, £m
100,000
50,000
0
-50,000
Net Interest, profit and dividends
Transfers, net current account transfers
-100,000
Current account
Trade balance - goods
Trade balance - services
-150,000
1980 1984 1988 1992 1996 2000 2004 2008 2012
Source : ONS
Key export sectors
UK: Exports of goods and services 2014, £ bn
80
70
Financial
services
60
50
ICT services
40
30
Professional,
scientific and
technical
services
20
10
0
Services
Machinery Chemicals
Source : Oxford Economics/Haver Analytics
Motor
vehicles
European car sales revival adding to UK demand
Motor vehicles: Car registrations
3 month moving average, % year
50
France
40
30
20
Germany
UK
10
0
-10
-20
Italy
-30
-40
Jun-09
Jun-10
Jun-11
Jun-12
Source: LMC Automotive / Oxford Economics
Jun-13
Jun-14
Huge backlog of orders for airliners (& engines)
Airbus and Boeing: Orders
Number of aircraft
1750
1500
Airbus
1250
Boeing
1000
750
500
250
0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Company reports / Oxford Economics
But pharmaceutical sector struggling
Turnover: Pharmaceutical products
£mn, 3 month moving average
1800
1600
Total
1400
1200
1000
Export sales
800
600
400
Domestic sales
200
0
2007
2008
2009
Source : Haver Analytics
2010
2011
2012
2013
2014
Competitiveness issues facing other chemicals
Turnover: Chemicals ex. pharma
£mn, 3 month moving average
5000
4500
4000
3500
Total
3000
2500
Domestic
sales
2000
1500
1000
Export sales
500
0
2007
2008
2009
Source : Haver Analytics
2010
2011
2012
2013
2014
Digital, professional & support services
UK: GDP, % change y/y
25
20
15
10
5
0
-5
-10
-15
-20
1981
Information & communication
Professional, scientific & technical activities
Administrative & support activities
1985
1989
Source : Oxford Economics
1993
1997
2001
2005
2009
2013
Services exports currently skewed towards USA
UK: Goods exports, % of total
Oceania
2%
Africa
4%
Asia
19%
Europe
57%
UK: Services exports, % of total
Oceania
4%
Africa
4%
Asia
16%
Americas
18%
Europe
48%
Source : Oxford Economics/Haver Analytics
Americas
28%
Source : Oxford Economics/Haver Analytics
China’s imports of services set to grow hugely
China, Germany & US imports services, $m
4000000
3500000
3000000
China
2500000
Germany
USA
2000000
1500000
1000000
500000
0
2013
2018
Source : Oxford Economics
2023
2028
2033
2038
Competition in the R&D space very intense
World: R&D expenditures, % of GDP
Korea
Japan
Taiwan
Germany
US
China 2012
UK
China 1996
0
1
2
Source : Oxford Economics/Haver Analytics
3
4
5
In the UK 2 regions (+ North West?) stand out
R&D spending by region 2000-2012, £bn
5.0
East of England
4.5
4.0
3.5
South East
3.0
2.5
North West
2.0
1.5
1.0
0.5
0.0
2000
Source : ONS
2004
2008
2012
7
Conclusions
Nothing is certain
But the broad pattern is likely to be…
UK: Contributions to GDP growth, %pts
4.0
Consumer spending
Investment
3.5
Govt. consumption
Inventories
3.0
Net trade
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
19972007
2013
Source : Oxford Economics
2014
2015
2016
2017
2018
Clearly, more exports would be nice to have
And a lot more R&D (and innovation generally)
UK forecast summary
Forecast for UK
(Annual percentage changes unless specified)
Domestic Demand
Private Consumption
Fixed Investment
Stockbuilding (% of GDP)
Government Consumption
Exports of Goods and Services
Imports of Goods and Services
GDP
Industrial Production
CPI
Current Balance (% of GDP)
Government Budget (% of GDP)
Short-Term Interest Rates (%)
Long-Term Interest Rates (%)
Exchange Rate (US$ per £)
Exchange Rate (Euro per £)
2013
2014
2015
2016
2017
2018
1.9
1.6
3.2
0.5
0.7
0.5
0.5
1.7
-0.2
2.6
-4.2
-5.5
0.5
2.5
1.56
1.18
3.0
2.1
8.5
0.7
1.0
-1.6
-1.4
3.0
2.3
1.5
-4.7
-5.8
0.5
2.7
1.65
1.24
2.3
2.3
6.2
0.4
0.2
3.1
2.0
2.6
1.2
1.1
-3.6
-4.5
0.7
2.7
1.59
1.29
2.2
2.2
5.9
0.4
-0.9
5.6
4.6
2.5
1.5
1.8
-2.8
-3.3
1.4
3.1
1.59
1.31
2.3
2.5
5.5
0.4
-1.5
6.0
5.0
2.6
1.5
2.0
-2.3
-2.1
2.1
3.5
1.58
1.32
2.3
2.6
4.3
0.4
-0.6
5.3
4.5
2.5
1.3
2.0
-1.8
-1.0
2.8
4.0
1.58
1.33
UK Economic Outlook:
What will drive future growth?
[email protected]
25th November 2014