Dennis Turner, Chief Economist, HSBC UK Economic Outlook Bumping along…

Bumping along…. Dennis Turner HSBC Bank plc UK ECONOMIC OUTLOOK September 2010

THE RECESSION IS OVER

A deep recession

ALL THE LEVERS PULLED

Fiscal policy loosened

Government finances already in deficit

And deteriorated rapidly March 2010 Budget Report

Net debt (as a % of GDP) soaring Sustainable Investment Rule March 2010 Budget

Interest rates fall to historic lows

The lowest for over 300 years

And sterling plummeted

Sterling takes a pounding US dollar / £ (L axis) euro / £ (R axis )

STRAWS IN THE WIND

An end to destocking

Key PMI surveys in positive territory expansion contraction

Housing market fragile but improving rising falling House prices:

Exports starting to respond

A slow recovery is underway Forecast

RISKS

a) Debt overhang

Consumers were the driving force

But underpinned by borrowing

b) Fragile consumer sector

So real earnings squeezed

A slower recovery than the last recession Forecast

Consumer confidence still weak Long-term average

c) Public sector spending cuts

Planned government spending cuts (£bn)

Govt receipts and spending (% of GDP)

d) Slow growth in key export markets

Euro Area growth forecast Euro Area Annual GDP growth:

Euro Area growth forecast 2 Euro Area Annual GDP growth:

Exports are starting to respond Volume of UK goods exports:

f) Banking and credit problems

Funding issues

An injection of £200bn via QE

Credit growth still very subdued Lending to households Lending to businesses Annualized growth in outstanding lending

SHORT-TERM OUTLOOK

Slow fragile growth

Inflation – higher for longer Forecast Target Range

And interest rates start to turn Forecast

The exchange rate is favourable Sterling weaker US$ / £ (L axis) euro / £ (R axis ) HSBC forecast

THE NEW AGENDA

Where will growth come from?

Manufacturing output Volume of output, Manufacturing output

Manufacturing vs services GDP Services Volume of output, Manufacturing

THANK YOU