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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
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Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
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2013
Q1
2013
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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
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2010
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2011
Q2
2012
Q1
2012
Q4
2013
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2014
Q2
2015
Q1
2015
Q4
2016
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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
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Feb-
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Feb-
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g-14
Feb-
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g-15
Feb-
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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
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1981
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1987
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1991
1993
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2003
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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.
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-6
-4
-2
0
2
4
6
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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
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1/20
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/10/
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/04/
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1/20
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/10/
2007
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/04/
2009
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/10/
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/04/
2012
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/10/
2013
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/04/
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/10/
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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
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2006
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2007
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2008
Jul
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Feb
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2013
Oct
2014
May
2014
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2015
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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
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1995
-96
1996
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1997
-98
1998
-99
1999
-00
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-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
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/11/
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01/1
0/20
0201
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8/20
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01/0
6/20
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0801
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2/20
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01/1
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1301
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2014
01/0
8/20
1501
/07/
2016
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6/20
1701
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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
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-200
0
200
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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
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100
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1994
Q1
1995
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2000
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2001
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2002
Q1
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2011
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2012
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2013
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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
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90
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105
110
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r-1
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-12
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n-1
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v-1
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p-1
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b-1
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n-1
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r-1
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-Se
p-1
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Monthly average effective exchange rate index, Sterling (Jan 2005 = 100)
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1.1
1.2
1.3
1.4
1.5
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/11
/20
16
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/12
/20
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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
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Annual growth of consumer credit, percent, source: Bank of England
Credit cards Other loans and advances Total
The UK Economy in 2018Tutor2uA Level
Macroeconomics