THE PERFORMANCE OF THE UK ECONOMY Geoff Riley Tutor2u

Sustained growth….. NICE 1990s

C+I+G+X-M Consumer led growth (2/3 of UK economy) – fuelled by debt, equity withdrawal, low savings, confidence, low unemployment

Household savings ratio

Savings, unemployment and interest rates Over-confidence?

An end to the housing boom? The key thing is what is going to happen now? Soft landing? Crash? ‘Britain, because of its exceptional dependence on finance and housing, will suffer more than other big economies and certainly more than the United States’ (Kaletsky, 02-08)

Consumer borrowing

The debt mountain

Confidence on the slide

Unemployment

A record level of employment Inward migration Public sector spending boom Rise of part-time work

But big changes in the pattern of jobs De-industrialisation Since 1997, UK manufacturing has declined from 17 per cent to 13 per cent of gross value added and from 17 per cent to 11 per cent of total employment.

Textiles hit by globalisation

But car making still very strong

But oil and has is past its peak

Inflation – keeping a lid on consumer prices Inflation targeting started in 1992! BoE made independent in 1997

Goods and services

Retail price index and the CPI

Pay and prices – real incomes Is this valid? CPI is flawed. Tight control of inflation, decline in collective bargaining, low inflation + people not understanding personal RPI

Inflationary threats from overseas

Crude oil

Interest rates – BoE policy rates

Le Credit Crunch

Interest rates elsewhere

Growth and interest rates

Britain’s trade deficit

Trade in Services

The Current Account Britain’s current account deficit in 2007 was £53bn

Trade with China

Government spending and taxation

The Budget Deficit

A rising national debt

Sterling – dollar exchange rate

Sterling – Euro Exchange Rate

A looming economic crisis?