Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
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