This is a presentation on aspects of the recent performance of the UK economy. All students are expected to have a good contextual knowledge of recent trends in indicators such as economic growth, inflation, unemployment, the trade balance, interest rates and government borrowing.

2. These are the key macroeconomic policy objectives
Price Stability (CPI
Inflation of 2%)
Growth of Real GDP
(National Output)
Falling Unemployment /
Raising Employment
Higher Average Living
Standards (national
income per capita)
Stable Balance of
Payments on the Current
Account
An Equitable Distribution
of Income and Wealth

3. Additional objectives of macroeconomic policy
Balancing the budget and
reducing the national debt
Improved economic
well-being
Better regional balance
in the UK economy
Improved access to &
quality of public
services
Improved global
competitiveness
Environmental
sustainability

4. UK Economy Overview (Source: March 2016 Budget)
% change unless stated 2014 Actual 2015 Actual 2016 (Forecast)
Output at constant market prices
Gross domestic product (GDP) 2.9 2.2 2.0
Output gap (% of GDP) -1.0 -0.3 -0.2
Expenditure components of real GDP
Household consumption 2.5 2.9 2.4
General government consumption 2.5 1.7 0.2
Business investment 4.7 4.7 2.6
General government investment 5.8 2.2 0.2
Net trade -0.4 -0.5 -0.4
Inflation
Consumer price index 1.5 0.0 0.7
Labour market
Employment (millions) 30.7 31.2 31.6
Average earnings 1.4 2.3 2.6
LFS unemployment (rate, per cent) 6.2 5.4 5.0

5. 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Inflationrate
CPI inflation target = 2%
Inflation Rate in the UK Economy in Recent Years
A lower inflation rate means
prices rise more slowly – this is
known as disinflation
Source: Office for National Statistics

6. CPI Inflation in the UK over the last 20 Years
The inflation rate for goods such as clothing and computing equipment has been,
on average, lower than for service such as insurance and education
-3
-2
-1
0
1
2
3
4
5
6
7
1995
JAN
1996
JAN
1997
JAN
1998
JAN
1999
JAN
2000
JAN
2001
JAN
2002
JAN
2003
JAN
2004
JAN
2005
JAN
2006
JAN
2007
JAN
2008
JAN
2009
JAN
2010
JAN
2011
JAN
2012
JAN
2013
JAN
2014
JAN
CPI all items
CPI goods
CPI services
Annual rate of change of consumer prices (%) Source: Office for National Statistics

7. -4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017* 2018* 2019* 2020*
GDPgrowthratecomparedtopreviousyear
The chart shows real GDP growth for the UK from 2010-2014. Data for 2015 onwards
shows forecast growth using figures from the International Monetary Fund (IMF)
Source: ONS
The UK Economic Cycle in Recent Years
“GDP in the UK grew steadily during the
2000s until a financial market shock
affected UK and global economic
growth in 2008 and 2009.” ONS

8. Source: ONS
The UK Economic Cycle in Recent Years
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
350
370
390
410
430
450
470
Q12003
Q32003
Q12004
Q32004
Q12005
Q32005
Q12006
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Real GDP for the UK Economy
Growth, seasonally adjusted (%) Levels, seasonally adjusted (£ billion)
£ billion
Per cent

9. Real GDP Growth Fan Chart for the UK Economy
-6
-4
-2
0
2
4
6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Percentagechangeonayearearlier
Source: ONS, OBR
The chart shows actual GDP growth and a probability fan chart for growth. Forecasting
growth is difficult because growth is affected by domestic and external factors / shocks
Source: March 2016 Budget

10. The Estimated Output Gap for the UK Economy
The chart shows the estimated output gap for the UK economy. Note that
there is a range of estimates from different economic forecasters.
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3
November 2015 central
estimate
Highest forecast
Lowest forecast
Negative output gap –
i.e. the economy has
margin of spare capacity
Positive output gap – i.e.
where actual GDP is
above potential GDP – a
sign of excess aggregate
demand

11. Index of UK Production by main Economic Sector
80
85
90
95
100
105
110
115
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Index of Output at Constant Prices, 2008 Quarter 1 = 100
Manufacturing Production Construction Services

12. Real Household Disposable Income (Per Quarter)
3400
3600
3800
4000
4200
4400
4600
2000Q1
2000Q3
2001Q1
2001Q3
2002Q1
2002Q3
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
Real household disposable income per head (£s)
Between 2000 and 2007, there
was a significant increase in real
disposable income – helping to
fuel a strong economic boom
Since 2009, real household
disposable incomes have been
flat – affecting the living
standards of millions of people

13. Household Saving Ratio for the UK Economy
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Household final consumption
Savings ratio
The chart shows the annual
growth in household
consumption of goods and
services along with the
household saving ratio (% of
disposable income)
The saving ratio in the UK
has been falling since 2010
mainly due to a period of
relatively strong consumer
spending that has out-
paced the growth of real
disposable income
%

14. Average UK House Prices by Region
£s
-
100,000
200,000
300,000
400,000
500,000
600,000
UK England Wales Scotland Northern
Ireland
North
East
North
West
Yorks &
The
Humber
East
Midlands
West
Midlands
East London South
East
South
West
Mix-adjusted average house price for UK countries and English
Regions, October 2015

15. UK Unemployment Rate (Labour Force Survey)
0
2
4
6
8
10
12
14
Jan-Mar1971
Apr-Jun1972
Jul-Sep1973
Oct-Dec1974
Jan-Mar1976
Apr-Jun1977
Jul-Sep1978
Oct-Dec1979
Jan-Mar1981
Apr-Jun1982
Jul-Sep1983
Oct-Dec1984
Jan-Mar1986
Apr-Jun1987
Jul-Sep1988
Oct-Dec1989
Jan-Mar1991
Apr-Jun1992
Jul-Sep1993
Oct-Dec1994
Jan-Mar1996
Apr-Jun1997
Jul-Sep1998
Oct-Dec1999
Jan-Mar2001
Apr-Jun2002
Jul-Sep2003
Oct-Dec2004
Jan-Mar2006
Apr-Jun2007
Jul-Sep2008
Oct-Dec2009
Jan-Mar2011
Apr-Jun2012
Jul-Sep2013
Oct-Dec2014
Unemployment rate (per cent of the labour force)
Unemployment measures people without a job who have been actively seeking work within the
last 4 weeks and are available to start work within the next 2 weeks.

16. Duration of LFS Unemployment in the UK economy
500
1,000
1,500
2,000
2,500
3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Over 24 months
12-24 months
6-12 months
Less than 6 months
Total unemployment, seasonally adjusted In the last few years
there has been a
welcome fall in the
level of
unemployment
One of the big
challenges for the
UK is to make more
progress in reducing
long-term structural
unemployment

17. Unemployment by Age in the UK Economy
The decline in unemployment since 2011 has been across all age groups,
but has been greater for the 18 to 49 age brackets during this period
100
200
300
400
500
600
700
800
900
16-17 18-24 25-34 35-49 50-64 65+
2011
2012
2013
2014
2015 Q1-Q3
Total unemployment, seasonally adjusted

18. The Rise of Zero Hours Contracts in the UK Economy
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Zero Hours Contracts do not guarantee a minimum number of
working hours each week
In employment on a zero hours contract (thousands)
Percentage of people in employment on a zero hours contract
• People on “zero-hours contracts” are more
likely to be young, part time, women, or in
full-time education when compared with
other people in employment.
• On average, someone on a “zero-hours
contract” usually works 26 hours a week
Total
(thousands)
% of people
in work

19. Economic Inactivity in the UK Labour Market
People not in employment who have not been seeking work within the
last 4 weeks and/or are unable to start work within the next 2 weeks​
8,400
8,600
8,800
9,000
9,200
9,400
9,600
Jan-Mar2006
May-Jul2006
Sep-Nov2006
Jan-Mar2007
May-Jul2007
Sep-Nov2007
Jan-Mar2008
May-Jul2008
Sep-Nov2008
Jan-Mar2009
May-Jul2009
Sep-Nov2009
Jan-Mar2010
May-Jul2010
Sep-Nov2010
Jan-Mar2011
May-Jul2011
Sep-Nov2011
Jan-Mar2012
May-Jul2012
Sep-Nov2012
Jan-Mar2013
May-Jul2013
Sep-Nov2013
Jan-Mar2014
May-Jul2014
Sep-Nov2014
Jan-Mar2015
May-Jul2015
Sep-Nov2015
Total economically inactive aged 16-64 (thousands)

20. Reasons for Economic Inactivity in the UK
People not in employment who have not been seeking work within the
last 4 weeks and/or are unable to start work within the next 2 weeks
0
500
1,000
1,500
2,000
2,500
Reasons for Inactivity (3 months from
Nov 2015-Jan 2016)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Does not want
job (thousands)
Wants a job
(thousands)
Of the total who are
economically inactive000’s000’s

21. Annual UK Trade Balance in Goods and Services
Source: Office for National Statistics
-50000
-40000
-30000
-20000
-10000
0
10000
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Trade in Goods & Services: Total balance: £million

22. UK Trade and Current Account Balance (% of GDP)
The UK’s external trade position has worsened considerably in the last few years.
Since 2013 the quarterly current account deficit has average 5% of our GDP
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0 2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
Trade balance (%, GDP)
Current account balance
(% GDP)

23. UK Trade Balances in Goods and Services with the EU
The UK runs a trade surplus with countries such as Ireland but large trade deficits
with countries such as Germany and Spain. Can you explain why?
-70
-60
-50
-40
-30
-20
-10
0
10
20
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rest of the EU Spain Netherlands Ireland Germany France
Annual Trade Balance (£ billion)
Source: Office for National Statistics

24. Base Interest Rates and Mortgage Rate in the UK
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Effective mortgage interest rate Base rate

25. Fluctuations in the UK Exchange Rate Index
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
ERI
€ : £
$ : £
The exchange rate index (ERI) is a trade-weighted measure of sterling against a
basket of currencies – weighted by the share of UK trade with each country
From late 2008
onwards there
was a significant
depreciation in
the external
value of sterling
Here the £ is
appreciating
against the Euro
but depreciating
against the US
dollar!

26. UK Government Borrowing and Debt
-4
-2
0
2
4
6
8
10
12
14
16
-50
-25
0
25
50
75
100
125
150
175
200
1993/94 1995/96 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14 2015/16
ytd
Net Borrowing
(% GDP)
Net Borrowing
(£ billion)
Full financial year
Year-to-date
Net Borrowing as a % of GDP
Royal Mail pension plan liabilities
transferred to the public sector

27. What are the key objectives of macroeconomic policy?
Price Stability (CPI
Inflation of 2%)
Growth of Real GDP
(National Output)
Falling Unemployment /
Raising Employment
Higher Average Living
Standards (national
income per capita)
Stable Balance of
Payments on the Current
Account
An Equitable Distribution
of Income and Wealth

28. Additional objectives of macroeconomic policy
Balancing the budget and
reducing the national debt
Improved economic
well-being
Better regional balance
in the UK economy
Improved access to &
quality of public
services
Improved global
competitiveness
Environmental
sustainability