Embed Size (px)
Citation preview
Prepared on: 10th
May 2010
Northern Bank: Quarterly
forecasts Quarter 2: 2010
Executive Summary
Demanding times: The reality of a sluggish
recovery
As we have been reporting for some time, the
recovery is likely to be slow and fragile and
risks abound.
The recent instability in Greece sent
shockwaves across Europe and has impacted
significantly on the financial markets and
business and consumer confidence. Recent
problems could affect the speed and scale of
the European recovery
Northern Ireland: With a limited local export
base, the road to recovery for Northern
Ireland will be slow and may not be smooth.
We expect a subdued recovery in Northern
Ireland with GVA growth of 1.0% this year
and 1.9% in 2011.
The lower than average growth in Northern
Ireland is the result of subdued consumer
confidence, expected public spending cuts,
our low export base and greater fragility in
the Euro area.
GVA growth estimates for 2010 show that
the local hospitality sector, the health sector
and retail will see higher than average year on
year growth but Construction, Public
Administration, Personal Services and
Financial Services will be below par.
Local unemployment is expected to peak at
just under 58,000 in 2011.
Downside risks continue to dominate.
Incomes are likely to be squeezed further as
tax rises are probable, prices are rising and
the Government wants to rebalance the
books sooner rather than later. This will cast
a shadow over the medium term.
UK: We expect a rather slow recovery for the
UK economy, with growth of 1.1% forecast in
2010 before momentum picks up in 2011
(2.2%).
Rebalancing required
Private sector expansion is crucial to the outlook
for Northern Ireland, given the expected public
sector constraints. The public sector currently
accounts for roughly 30% of total employment,
directly and possibly as much indirectly. Therefore
over the next parliament there is a need for a faster
growing private sector and a rebalancing of the
economy for overall economic growth to occur.
GVA growth (%)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Q1 2
006
Q3 2
006
Q1 2
007
Q3 2
007
Q1 2
008
Q3 2
008
Q1 2
009
Q3 2
009
Q1 2
010
Q3 2
010
Q1 2
011
Q3 2
011
Q1 2
012
Q3 2
012
%
NI
UK
Prepared on 10th
May 2010
Quarterly forecasts
GVA growth rates - NIQ on Q
growth
Y on Y
growth
Annual
growth
Q1 2009 -2.5 -4.6
Q2 2009 -1.1 -5.5 -4.6
Q3 2009 -0.6 -4.7
Q4 2009 0.6 -3.7
Q1 2010 0.4 -0.7
Q2 2010 0.6 1.0 1.0
Q3 2010 0.3 1.9
Q4 2010 0.6 1.9
Q1 2011 0.3 1.8
Q2 2011 0.4 1.6 1.9
Q3 2011 0.7 2.1
Q4 2011 0.8 2.2
GVA growth rates - UKQ on Q
growth
Y on Y
growth
Annual
growth
Q1 2009 -2.6 -5.3
Q2 2009 -0.7 -5.9 -4.9
Q3 2009 -0.3 -5.3
Q4 2009 0.4 -3.1
Q1 2010 0.2 -0.3
Q2 2010 0.6 1.0 1.1
Q3 2010 0.5 1.8
Q4 2010 0.5 1.9
Q1 2011 0.5 2.2
Q2 2011 0.6 2.2 2.3
Q3 2011 0.6 2.3
Q4 2011 0.7 2.5
Source: Oxford Economics
A question of demand
A slow decline in unemployment will dampen the
chances of a major consumer-led recovery. This
will be further intensified by the weakness of
earnings growth and the expected rises in taxes.
With the public sector similarly constrained, the
UK economy will be reliant on net trade to drive the
recovery forwards. As Northern Ireland‟s export
base is relatively under-developed, the chances of
an export-led recovery are slim. Downward
pressures on demand may come from subdued
consumer spending and/or a stalling European
recovery.
Optimism around local Q4 employment rises?
The local employment level rose by over 6,000 in
the last quarter of 2009 with retailing and
education accounting for the majority of the
increase. This is likely to reflect the Christmas
period and inherent demand for seasonal retail
workers. The education expansion is also due to
seasonality. This means the optimism is perhaps
misplaced but does contrast with survey
information that was suggesting no Q4 job growth.
The number of persons in employment in January –
March 2010 was estimated 774,000.
Why the downward revisions?
Output growth within Northern Ireland has been
revised downwards from the Q1 2010 Quarterly
Forecasts. The latest forecasts suggest annual
average growth of 1.0% for 2010 compared to
our previous estimate of 1.3%. The lower than
average rate of growth is the result of a number of
factors.
the local labour market which has already
been damaged already but austerity
measures now look set to reduce public
sector employment sooner rather than
later.
Many international recoveries, for example
in Germany and the US are being driven by
exports – but as Northern Ireland has a
relatively small export base, an export-led
recovery is not possible in the short-term.
Consumer demand is likely to remain
subdued as taxes are expected to be raised
and local public sector workers fear for
their jobs.
Finally, events in Europe stemming from
the Greek debt crisis have highlighted the
fragility of financial markets and
confidence. Any lasting problems in
Europe during 2010 would automatically
impact upon the UK and local recovery. A
weakening of the Euro would reduce the
competitiveness of UK exporters selling
into the Euro-zone.
Prepared on 10th
May 2010
Quarterly forecasts
Quarterly forecasts
Prepared on: 10th
May 2010
Northern Ireland: mixed signals from the labour
market
The quarterly employment data for Q4 2009
paints an apparently optimistic picture for
Northern Ireland with reported labour market
expansion of almost 6,000 jobs. But, the data also
reveals job losses of almost 21,000 (-2.9%) within
the last 12 months compared to -2.4% in Wales
and 2.1% in Scotland .
000's % 000's %
South East -71.0 -1.9 10.7 0.3
London -63.5 -1.6 30.5 0.8
East -70.1 -2.9 -7.2 -0.3
South West -46.1 -2.1 -17.8 -0.8
West Midlands -67.2 -2.9 14.5 0.6
East Midlands -43.1 -2.3 -5.4 -0.3
Yorkshire & Humber -59.0 -2.7 1.8 0.1
North West -47.0 -1.6 13.1 0.4
North East -23.3 -2.2 9.9 1.0
Wales -27.7 -2.4 4.1 0.4
Scotland -49.1 -2.1 3.7 0.2
Northern Ireland -20.9 -2.9 6.0 0.9
United Kingdom -587.6 -2.2 64.0 0.2
Employee growth (last year, last quarter)Dec 08 - Dec 09 Sep 09 - Dec 09
Analysing the sectoral detail, the majority of
sectors experienced job loss with the exception of
agriculture, retail, transport and communications
and the public sector.
Jobs created:
The majority of the jobs created in the last quarter
were experienced within “retailing and
distribution” (5,950 jobs) and education (3,850
jobs).
Job losses:
On the other hand, significant job losses were
reported within business services (2,070 jobs)
and construction (1,440 jobs). To date, the
recession has cost the economy almost 32,000
net jobs from the Q4 2007 peak, with employment
returning to a level last experienced in Q3 2005.
Not surprisingly, the majority of the job losses
have been felt within construction (11,400 jobs)
and manufacturing (10,400). A further source of
weakness has been in the form of full-time job
losses and forced part-time working.
Unemployment (Mar09 - Mar10)
0
1
2
3
4
5
6
West
Midlands
North
Eas
t
North
ern Ir
eland
Yor
kshire
and
The
Hum
ber
North
Wes
t
Sco
tland
Lond
on
Wale
sUK
Eas
t Midland
sEas
t
Sou
th E
ast
Sou
th W
est
Cla
iman u
nem
plo
ym
ent
rate
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
p.p
diffe
rence
Claimant unemployment rate p.p. difference
Unemployment continued to rise in Q1 2010, an
increase of 1,500 claimants, although the monthly
rate of increase has slowed. Unemployment
currently (March 2010) stands at 55,900 in
Northern Ireland – a level last experienced in
January 1999. Local unemployment rises are
largely the result of the construction difficulties
which resulted from the collapse of the housing
market boom and the impact upon associated
professional services such as estate agents.
Given the degree of labour hoarding that we have
seen to date, it is unlikely that we will see a
significant acceleration in labour demand as the
economy recovers. We expect unemployment to
peak at just under 58,000 in 2011 with a gradual
drift downwards over the medium term as the
private sector recovers but the public sector
suffers with spending cuts. There is of course a
risk of further private sector job losses if the
recovery relapses.
Prepared on 10th
May 2010
Quarterly forecasts
‘Demanding times for the Northern Ireland
Labour market’
The overall employment level change over the last
twelve months is a good indicator of recent labour
market performance. Over the year to December
09, employee jobs fell by almost 24,000 jobs,
returning to a level last experienced in Q3 2005..
Over the same period, the public sector continued
to expand with an additional 5,000 jobs created.
Northern Ireland Outlook:
The forecasts suggest that the contraction within
the labour market will continue into mid 2010,
with job growth returning in the latter half of 2010.
Employment is projected to fall by around 42,000
jobs from its Q4 peak in 2007 to a low in Q3
2010.
Exports are expected to grow this year, helped by
the persistent weakness of Sterling and the pickup
in world demand as the major economies enter the
recovery phase. Consumer confidence remains
low and with inflation, taxes and oil prices all
expected to increase, consumers will not have the
resource to aid the recovery. With Sterling unlikely
to strengthen significantly accompanied by the
pickup in global demand export volumes should
accelerate (though EU uncertainty exists).
Greece's debt crisis could stall the global
economic recovery, and if unsuccessfully managed
by Europe the crisis has the potential to cut
growth in the major economies by around 1% per
annum compared to our baseline.
With weak domestic demand, a limited local export
base, looming public expenditure cuts and problems
in Europe, we now expect a subdued recovery in
Northern Ireland with GVA growth of 1.0% this year
and 1.9% in 2011.
Wage inflation
Given the current macro conditions it is highly
unlikely that wage inflation is a major factor in the
region at present. The flexibility in the workforce
with shorter working hours, reduced overtime and
pay freezes has meant wage pressures are
relatively benign, and have been for some time. For
many in the private sector, keeping a job has been
a positive consequence; whereas in the public
sector the main issue was controlling labour
costs.
Real incomes were supported last year by the
sharp decline in mortgage interest rates, which
greatly reduced debt servicing costs. However, as
interest rates cannot fall any further this boost will
fade. In addition, inflation has been higher than
expected and taxes could increase. With wage
growth likely to remain subdued, pressures will
intensify further next year especially as the
proposed increase in employees National
Insurance Contributions looks set to go ahead.
Prepared on 10th
May 2010
Quarterly forecasts
Unemployment
The latest quarterly unemployment data would
suggest that unemployment within Northern
Ireland continues to creep upwards.
The latest monthly figures suggest a decrease of
200 people between March and April (seasonally
adjusted series), with claimant unemployment
currently standing at 55,400.
The ILO measure for the period Jan 2010 –March
2010 suggested a rise in the number of
unemployed to 6.7% of working age people, up
6,000 over both the quarter and the year. The NI
rate remained below the UK rate of 8.0% and was
also lower than the European Union (9.6%) and
Republic of Ireland (13.1%) rates for January
2010.
In the short run, we expect unemployment to
continue to rise with the forecast suggesting a
peak just below 58,000 in 2011 (seasonally
adjusted). However, risks exist and a secondary
pick up is possible given the fragile recovery. Over
the medium term unemployment is expected to
drift down only gradually with no return to the
levels experienced earlier in the decade. For this
to happen we need a steady recovery in private
sector employment to contrast with public sector
job losses as the government implements the
necessary spending cuts.
Prepared on 10th
May 2010
Quarterly forecasts
Agriculture (+0.1 2010 yoy )
The recent employment data suggests that
agriculture continues to perform well with an
increase of almost 600 jobs reported in Q4 2009.
This reflects the improvement in fortunes we have
highlighted in previous Northern Bank Quarterly
Forecasts. We project stable employment in the
sector and continued positive growth in GVA
during 2010 and 2011.
The outlook is underpinned by a favourable
Sterling exchange rates which will make the local
sector more competitive in global markets. Equally,
risks exist. The Euro could continue to be
weighted down by Greece‟s recent debt problems
making European exports more competitive.
Increasingly cost conscious consumers can be
more heavily influenced by price during recession
as incomes are squeezed and can therefore push
up demand for cheap import substitutes.
Although the fortunes for the sector look strong,
as always the caveat remains that the forecasts
assume no change in export potential, in other
words a disease free sector. Outbreaks of
infectious diseases such as BSE and Bird Flu can
quickly reverse the fortunes of the sector.
However, at present the sector‟s conditions are
more favourable than at any time in recent history.
Manufacturing (+0.9 2010 yoy)
Provisional results for the Northern Ireland Index
of Production for the fourth quarter of 2009 show
that output levels increased over the quarter in
real terms (0.2%). This is the first quarter to
report an increase after peaking in Q2 2008.
However, the index remains low, with the latest
three quarters recording the lowest levels since
Q2 2003 (94.5).
The employment data also continues to show job
losses within the sector albeit at a slower rate.
The latest government data reports a loss of only
100 jobs (0.1%) in Q4. However, examining the
data in detail reveals that the non-construction
related subsectors are performing relatively well.
In particular, the recent strength of both the food
and drink and chemicals sub-sectors are evident
with employment expanding over recent quarters.
The recovery of local manufacturing will depend
crucially on the scale of world demand. This sector
Employment/GVA Agriculture
32.0
33.0
34.0
35.0
36.0
37.0
38.0
39.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ymen
t (0
00s)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
GV
A (
% y
ear
on
yea
r g
row
th)
Employment Agriculture
GVA Agriculture
Employment/GVA Manufacturing
80.0
82.0
84.0
86.0
88.0
90.0
92.0
94.0
96.0
98.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
en
t (0
00s)
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
GV
A (
% y
ear
on
year
gro
wth
)
Employment Manufacturing
GVA Manufacturing
Prepared on 10th
May 2010
Quarterly forecasts
is expected to continue its long term employment
contraction over the decade ahead. It may regain
some of its recent losses in early 2010, though
this is far from certain. Growth in output terms is
expected to return mid 2010.
Construction (-1.7 2010 yoy)
The latest employment data for the sector
suggests a further weakening of the sector, with a
loss of almost 1,800 jobs recorded in Q4.
Employment levels within the sector have fallen to
below 61,300 (a level last experienced a decade
ago). From its Q4 2007 peak, the sector has lost
over 15,000 jobs (25%). The latest Index of
Construction (Q1 2010) suggests a continued
contraction within the sector, down 1pp on the
previous quarter and down 4.4 pp from 12 months
ago. The recent decrease in the volume of output
was accounted for mainly by a decline in repair and
maintenance work which was perhaps more
surprising. The volume of new work stayed at
broadly the same level as in the previous two
quarters.
We expect the sector to return to modest GVA
growth from mid 2010 onwards as the housing
market picks up and ISNI infrastructure
developments continue. However, the risks from
public expenditure cuts to future infrastructure
spend remain a significant worry. The labour
market is not expected to pick up until mid/late
2011 and it is not expected to return to the 2008
record levels of employment over the medium
term.
Retailing and distribution (+2.9 2010 yoy)
The expected „Christmas bounce‟ occurred in Q4
2009 with a marked increase in retailing
employment (almost 6,000 jobs). However, recent
downward revisions to the 2009 official data have
been significant and not as expected given the
influx of cross border shoppers.
The employment outlook for this sector remains
weak given recent high profile closures such as
Laser and Adams and taking into account
seasonality, we would expect a return to falling
employment until mid 2010 at the earliest.
Furthermore, consumers are likely to remain
cautious in the face of high unemployment and a
slow recovery over the year ahead.
Subject to the exchange rate and local VAT levels
remaining at 17.5 percent in the next Budget; we
Employment/GVA Construction
56.0
58.0
60.0
62.0
64.0
66.0
68.0
70.0
72.0
74.0
76.0
78.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
ent
(000s)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
GV
A (
% y
ear
on y
ear
gro
wth
)
Employment Construction
GVA Construction
Employment/GVA Retail
130.0
135.0
140.0
145.0
150.0
155.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
en
t (0
00s)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
GV
A (
% y
ear
on
year
gro
wth
)
Employment Retail
GVA Retail
Prepared on 10th
May 2010
Quarterly forecasts
expect the cross border trade effect to continue,
but to a lesser extent due to closing price
differentials. Indeed, the Experian footfall index has
indicated that the tide of RoI shoppers flocking
north is slowing. In February and March, the
number of shopping centre visitors increased in
ROI for the first time in two years, but fell in
Northern Ireland. In addition, the Quays shopping
centre in Newry has reported that Republic-
registered cars only accounted for 35% of all cars,
down from 65% 12 months ago. Recent figures
from Tesco Ireland have also drawn a similar
conclusion.
Hotels and restaurants (+3.7 yoy 2010)
The latest employment data for the sector
suggests expansion within the sector, with an
increase of almost 100 jobs recorded in Q4. The
fairly modest employment growth will in part be a
reflection of people changing their type of spend,
„eating in‟ rather than spending on restaurants, as
less staff are required for a takeaway outlet than a
sit-down restaurant. The seasonal boom should
also have helped to boost employment within the
sector at the end of 2009.
We project employment growth returning in late
2010 as confidence returns to the economy and
spending responds accordingly. With Sterling
unlikely to strengthen significantly, we would
expect an increase in local residents „holidaying at
home‟ and some increase in the flow of overseas
visitors to Northern Ireland, assuming the
Icelandic ash cloud does not impact upon the
latter.
Transport & Communications (+1.4 yoy 2010)
Employment has held up rather well within
transport and communications, though a
Christmas spike is often incurred as
transportation of goods increases. The public
transport element will also have continued to
cushion the sector and help account for recent
performance. Indeed rising fuel prices may have
led to more public sector travel demand.
The air transport component of the sector has
suffered considerable disruption recently as the
result of the Icelandic eruption. The volcanic ash
has caused Northern Ireland‟s aerospace to close
for a number days. At present we estimate that
the net effect of this to be small though if the
disruption continues, the impact will grow. The
Employment/GVA Hotels
41.0
42.0
43.0
44.0
45.0
46.0
47.0
48.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
en
t (0
00s)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
GV
A (
% y
ear
on
year
gro
wth
)
Employment Hotels
GVA Hotels
Employment/GVA Transport & Comms.
33.5
34.0
34.5
35.0
35.5
36.0
36.5
37.0
37.5
38.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
en
t (0
00s)
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
GV
A (
% y
ear
on
year
gro
wth
)
Employment T+C
GVA T+C
Prepared on 10th
May 2010
Quarterly forecasts
impact on secondary activities such as taxis is
significant and if the disruption continues the
impact will of course grow.
Looking forward, employment growth is expected
to return to the sector in 2011 as the recovery
gathers pace and the pickup in other supporting
sectors (such as manufacturing and construction)
strengthens and begins to feed through to
transport. Fundamental communications demand
remains strong and is likely to pick up during the
recovery - particularly in exporting elements of the
sector. A large downside risk for the sector‟s
outlook would include oil price rises.
Financial services (+0.4 20101 yoy)
The latest employment data continues to show the
financial services resilience to the recession with
only a modest contraction of 300 jobs recorded.
Employment levels are only down around 1,400
from peak. This unspectacular retraction reflects
the continued demand for financial services even
during a recession and not all banks within the
sector have fallen into loss making territory.
However, there are likely to be more significant job
cuts over the year to 18 months ahead as
rationalisation and cost cutting programmes begin
to be implemented. Future losses cannot be
discounted.
Business services (+1.7 2010 yoy)
Employment in this major sector fell throughout
2009 reflecting the problems in both the
consumer and the commercial dependent sub-
sectors. Alongside early casualties in the sector
such as estate agents, surveyors and solicitors,
the pressures are also fed through to accountants,
consultants, insurance and advertising executives
and other “business to business” activities.
Contraction in GVA is projected to have continued
in early 2010 but the versatility and diversity of
the sector mean that a return to positive growth is
projected by mid 2010. Downside risks abound in
this sector but it is still expected to be the main
source of long-term job growth in Northern Ireland
as the concentration of skills and diverse nature
(serving government, consumers and businesses)
Employment/GVA Financial
18.5
19.0
19.5
20.0
20.5
21.0
21.5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
en
t (0
00s)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
GV
A (
% y
ear
on
year
gro
wth
)
Employment Financial
GVA Financial
Employment/GVA Business
75.0
80.0
85.0
90.0
95.0
100.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
en
t (0
00s)
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
GV
A (
% y
ear
on
year
gro
wth
)
Employment Business
GVA Business
Prepared on 10th
May 2010
Quarterly forecasts
give it greater „reach‟ or coverage than most other
sectors of the economy.
Public administration (-1.5 2010 yoy)
Although the labour market data suggest
expansion within public administration
employment late last year, the scale of growth is
modest and the sector is only 430 jobs higher
than at the end of 2007.
The impacts of the looming public expenditure
squeeze are unclear but pressures at the local
government level are likely to result in some job
losses – we project a fall from mid 2010 to 2012
of 4,000 jobs. Furthermore this is likely to be the
trend into the medium term under the current
outlook for public finances.
Education (+0.8 2010 yoy)
Employment in the education sector at the end of
last year was very modestly higher than at year
end 2008, one of the few sectors to be able to
make this claim. The reluctance to make hugely
unpopular cuts to front line services will make
reductions in education employment less likely
than in other parts of public services and we
project relatively stable employment (adjusting for
seasonality) over the next two years.
A limited private sector protects against large job
losses in education. Indeed the training of school-
leavers or those made redundant in the recession
may well provide some support to employment
levels in this sector. As with other elements of the
public services GVA data is fairly meaningless and
thus no great significance should be placed upon
its observed patterns, which largely mirror
employment trends.
Health (+3.1 2010 yoy)
Employee data suggested a continued expansion
for health employees (an increase of 400 jobs at
the end of Q4) – continuing the trend of recent
years. As with education the desire to avoid cuts in
„front line‟ services means that this sector is
unlikely to feel the full recessionary effects.
Prepared on 10th
May 2010
Quarterly forecasts
The short run outlook is for employment to remain
relatively flat, with a possibility of a slight
contraction over the medium term as spending
cuts filter through. An ageing population, schemes
to support childcare (childcare workers appear in
this sector) and potential health issues arising
from the stresses of recessions (such as stress
and depression) will undoubtedly increase demand
for the sector. The supply and quality of services in
times of austerity is another downward risk.
Other personal services (+0.6 2010 yoy)
The latest employee data suggests that the „other
personal services‟ sector continued to contract in
Q4 2009 with the loss of over 1,000 jobs, taking
the sector back to a level last experienced in
2005. As incomes are squeezed, sectors such as
leisure feel the pinch and their contraction is to be
expected. The voluntary sector is also like to feel
pressures on its incomes (either from donations
or government) at a time when demand for its
services will be on the rise. Towards the end of
2010 the sector should however begin to benefit
from the pickup in the wider economy as spending
begins to climb again.
Global and UK developments
Despite the recent bold move from ECB, EU and
IMF (in terms of the stabilization package) policy
makers in Europe are still struggling to prevent
contagion from the European debt crisis. So far
they have not been particularly successful, with
global risk appetite tumbling and hurting equities,
credit bonds, commodities and high-yielding
currencies badly. A weakening of the Euro would
result in European exports becoming more
competitive and could hamper the UK‟s recovery.
The UK continues to limp out of recession
UK Forecasts:
We expect a rather slow recovery for the UK
economy, with growth of 1.1% forecast in 2010
before momentum picks up in 2011 (2.2%).
GDP grew by 0.3% in Q1 2010, following a 0.4%
increase in the previous quarter, according to the
revised estimate from the Office of National
Statistics (ONS). The quarterly growth rate was
Employment/GVA Other Personal Services
38.0
39.0
40.0
41.0
42.0
43.0
44.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008 2009 2010 2011 2012
Em
plo
ym
en
t (0
00's
)
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
GV
A (
% y
ear
on
year
gro
wth
)
Employees Other Personal
Services
GVA Other Personal Services
Prepared on 10th
May 2010
Quarterly forecasts
once again slightly below expectations, and did not
conform with the survey results. While
manufacturing output increased by 1.2% on the
quarter, the services sector grew by just 0.2%.
This is likely to be weather related and also due to
the increase in VAT in January.
Government retrenchment
Public finances deteriorated rapidly through the
course of the financial year 2009/10, leaving
them in a parlous state. HMRC tax revenues were
down 8% over the first eleven months of
2009/10, compared with the previous year. Part
of this can be attributed to the temporary cut in
the standard rate of VAT, but there have been
sharp declines in revenue from other sources,
notably income tax and corporation tax. It should
be noted that the dire state of the public finances
cannot simply be attributed to the recession – the
government was running sizeable fiscal deficits in
the years prior to the recession.
Given the extreme squeeze on the public purse, it
is likely that there will be little demand from the
government to help drive the recovery (though any
transfer of activity to private sector could provide
a boost). Public sector borrowing and national debt
are key issues for new government to tackle and
the additional retrenchment required will be spelt
out in the next Budget on June 22nd.
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013Source: Oxford Economics
UK: GDP growth% quarter
Forecast
0
20
40
60
80
100
120
140
160
180
2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
OE HMT
UK: Public Sector Net Borrowing£bn
Source : Oxford Economics/Haver Analytics
Forecast
Quarterly forecasts
Prepared on: 10th
May 2010
Prepared on 10th
May 2010
Quarterly forecasts
Prepared on 10th
May 2010
Quarterly forecasts
Annex A: Sectoral definitions
No. Sector SIC code
1 Agriculture & Fishing - includes the growing of crops and fruits, the farming of animals, agricultural services and forestry and fishing related activities
01-05
2 Extraction - includes mining and extraction of coal and metal ores, quarrying activities and service activities incidental to oil and gas extraction
10-14
3-15
Manufacturing - includes manufacturing of food, drink and tobacco, textiles and leather, wood and wood products, pulp, paper and printing coke, oil refining and nuclear, chemicals, rubber and plastic products, other mineral products, metals, machinery and equipment nec, electrical and optical equipment, transport equipment and manufacturing nec.
15-37
16 Electricity, Gas & Water - includes the production and transmission of electricity, gas and water, 40-41
17
Construction - includes construction of buildings, transport infrastructure e.g roads and railways and trades activities including plumbing, plastering, joinery etc.
45
18 Distribution & Retailing - includes sales agent, wholesale and retail activities 50-52
19
Hotels & Catering - includes restaurants, short stay accommodation including hostels and camping sites, public houses and other catering services such as airline catering and banqueting catering
55
20
Transport & Communications - includes activity of land, air and sea transport operators along with travel agencies and postal and telecommunications businesses
60-64
21
Financial Intermediation - includes financial institutions such as banks, building societies, financial leasing, insurance companies, mortgage finance companies and fund management activities
65-67
22
Business Services - includes rental services, management and consultancy activities, accounting and legal services, market research, secretarial and translation activities
70-74
23
Public Admin. & Defence - includes general overall public service activities including regulation of the bodies providing public services such as health. It includes defence, fire service, social security and justice and judicial activities
75
24 Education - includes all levels of education from primary through to higher and also includes driving school activities and activities of private training providers
80
25
Health & Social Work - all medical activities including hospital activities, dentists and opticians. It also includes medical nursing home activities, veterinary activities along with social work activities
85
26
Other Personal Services - activities of religious and political organisations, museum activities, entertainment facilities, hair and beauty treatments and washing and dry cleaning services
90-99
