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The UK Economy in The UK Economy in 2011-122011-12
Bumping along….Bumping along….
Dennis Turner
Chief Economist, HSBC Bank plc
THE RECESSION IS OVERTHE RECESSION IS OVER
A deep recessionA deep recession
-6.0
-4.0
-2.0
0.0
2.0
4.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%
QUARTERLY
ANNUAL
Long-term average
ALL THE LEVERS PULLEDALL THE LEVERS PULLED
Fiscal policy loosened
Government finances already in deficitGovernment finances already in deficit
-200
-150
-100
-50
0
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-200
-150
-100
-50
0
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
……and then deteriorated rapidlyand then deteriorated rapidly
March 2010 Budget Report
Interest rates fall to historic lows
Lowest interest rates for over 300 yearsLowest interest rates for over 300 years
0
1
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%
And sterling plummeted
Sterling takes a poundingSterling takes a pounding
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2005 2006 2007 2008 2009 2010
$/£
1.00
1.10
1.20
1.30
1.40
1.50
1.60
€/£
A slow recovery is underwayA slow recovery is underway
-6.0
-4.0
-2.0
0.0
2.0
4.0
2006 2007 2008 2009 2010 2011
%
QUARTERLY
ANNUAL
Long-term average
Forecast
RISKSRISKS
Consumers were the driving forceConsumers were the driving force
-3
-2
-1
0
1
2
3
4
5
6
7
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% C
HA
NG
E
CONSUMER SPENDING RETAIL SALES
But underpinned by borrowingBut underpinned by borrowing
-1
1
3
5
7
9
11
13
15
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
75
85
95
105
115
125
135
145
155
165
INTEREST REPAYMENTS/DISPOSABLE INCOMES(LHS)
DEBT / DISPOSABLE INCOMES(RHS)
%
Consumers are not borrowingConsumers are not borrowing
-8
-4
0
4
8
12
16
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
£ bn
-8
-4
0
4
8
12
16
20
% an
nu
al gro
wth
Housing equity withdrawal (L axis)
Consumer credit (R axis)
But real earnings squeezedBut real earnings squeezed
-3
-2
-1
0
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Average earnings growthConsumer price inflation
Real earnings growth
%
A slower recovery than the last recession A slower recovery than the last recession
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% C
HA
NG
E
CONSUMER
c) Public sector spending cuts
So net debt (as a % of GDP) soaredSo net debt (as a % of GDP) soared
25
30
35
40
45
50
55
60
65
70
75
80
1990 1994 1998 2002 2006 2010 2114
% o
f G
DP
Sustainable Investment Rule
March 2010 Budget
Govt receipts and spending (% of GDP)Govt receipts and spending (% of GDP)
35
40
45
50
55
2009-10 2011-12 2013-14 2015-16
% of
GDP
Budget to be balanced in four yearsBudget to be balanced in four years
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2008/09 2010/11 2012/13 2014/15
% o
f G
DP
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
% o
f GD
P
Emergency Budget June 2010
Budget March 2010
Surplus on current budget:
Debt burden to peak in three years timeDebt burden to peak in three years time
50
55
60
65
70
75
2009/10 2011/12 2013/14 2015/16
% o
f G
DP
50
55
60
65
70
75
% o
f GD
P
Emergency Budget June 2010
Budget March 2010
Public sector net debt:
d) Slow growth in key export markets
In the wrong placesIn the wrong places
0
20
40
60
200820031998
%
0
20
40
60
%
Western Europe
Central & Eastern Europe
BRIC (Brazil, Russia,India, China)
Euro Area southern fringe (Greece, Spain, Italy,Portugal)
Share of UK exports (goods & services):
Euro Area growth forecastEuro Area growth forecast
-6
-4
-2
0
2
4
2009 2010 2011 2012
%
Germany France
Italy Spain
Euro Area
Annual GDP growth:
Euro deficits add to the uncertaintyEuro deficits add to the uncertainty
UK
BelgiumItaly
Greece
Portugal
Ireland
Spain
-15
-12
-9
-6
-3
0
%
-15
-12
-9
-6
-3
0
%
2010 2009Annual deficit as % of GDP:
Tier 3 countriesTier 2 countries
SHORT-TERM OUTLOOKSHORT-TERM OUTLOOK
Slow fragile growthSlow fragile growth
-8
-6
-4
-2
0
2
4
6
8
1988 1991 1994 1997 2000 2003 2006 2009 2012
%
QUARTERLY ANNUAL
LONG TERM AVERAGE
Forecast
Inflation – above targetInflation – above target
-2
-1
0
1
2
3
4
5
6
2009 2010 2011
% c
han
ge
mo
nth
on
mo
nth
CPI RPI
Forecast
Target
Range
Taxes boosting inflationTaxes boosting inflation
0
1
1
2
2
3
3
4
4
5
5
2009 2010 2011
% c
han
ge
mo
nth
on
mo
nth
CPI CPI(Y)
Target
Range
Inflation – likely to easeInflation – likely to ease
-2
-1
0
1
2
3
4
5
6
2009 2010 2011 2012
% c
han
ge
mo
nth
on
mo
nth
CPI RPI
Forecast
Target
Range
And interest rates to stay low for nowAnd interest rates to stay low for now
0
1
2
3
4
5
6
7
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
%
Forecast
THANK YOUTHANK YOU
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