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UK Economy in the Global Crisis – Recovery in Sight? Mark Berrisford-Smith HSBC Bank plc
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Desperately seeking solutions forecastforecast Source: Bank of England, US Federal Reserve, ECB, HSBC HSBCHSBC Policy interest rates: Bank of England US Federal Reserve European Central Bank
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A world in recession …
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From credit crunch to global recession This has been the worst episode for the global economy since the 1930s
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The end of the golden years World Source: IMF, HSBC Annual GDP growth *excluding Japan
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Asias superpowers falter Asia (excluding Japan) Source: IMF, HSBC Annual GDP growth
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From credit crunch to global recession This has been the worst episode for the global economy since the 1930s Industrial production and international trade have collapsed
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Falling off a cliff Source: Thomson Datastream Industrial production annual percentage change
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A slump in international trade Source: WTO annual percentage change
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Japans exports are down by nearly a half Source: Thomson Datastream Japan: value of trade in goods annual percentage change Imports Exports
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From credit crunch to global recession This has been the worst episode for the global economy since the 1930s Industrial production and international trade have collapsed The prospects for recovery hinge on America and China
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Around six million jobs lost Source: BLS, BEA * Non-farm payrolls, average monthly change
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The US housing market – state of collapse Source: Thomson Datastream
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Waiting for the Obama stimulus HSBC forecast Source: BEA, HSBC USA: annual GDP growth Long-term average
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Surveys point to slower decline expansion contraction Source: Markit PMI surveys:
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The Euro Area – feet of clay Euro Area Source: Eurostat, HSBC Annual GDP growth
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Britain: from age of prosperity to age of austerity
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The worst is over Business surveys suggest that economic activity is now contracting at a much slower pace
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Business surveys – glimmers of hope expansion contraction Source: Markit PMI surveys:
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The worst is over Business surveys suggest that economic activity is now contracting at a much slower pace Consumer spending isnt quite the disaster that many predicted
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Consumer spending – not quite a disaster Source: ONS, Thomson Datastream
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The worst is over Business surveys suggest that economic activity is now contracting at a much slower pace Consumer spending isnt quite the disaster that many had predicted But unemployment has further to rise, and house prices further to fall
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The labour market – turning nasty Source: ONS
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House prices – further to fall Source: Bank of England, Halifax
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Strong medicine Bank Rate will be kept close to zero until well into next year
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Inflation – yesterdays story? Source: ONS
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What to do when interest rates approach zero HSBC forecast Source: Bank of England, ONS Inflation target
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Strong medicine Bank Rate will be kept close to zero until well into next year The MPC believes that the risks from doing too much are less than the risks from doing too little
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£125 billion of QE Source: Bank of England, ONS * Notes and coins in circulation, plus commercial banks sterling reserves held at the Bank of England £125bn
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The credit crunch – starting to ease Source: Bank of England Lending to households Lending to businesses Annualized growth in outstanding lending
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Narrowing the spreads Source: Thomson Datastream * Merrill Lynch UK corporate bonds index ** UK benchmark 10-yr govt bonds Corporate bond yields* Gilt yields** 3-month Libor UK Bank Rate
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Strong medicine Bank Rate will be kept close to zero until well into next year The MPC believes that the risks from doing too much are less than the risks from doing too little Sterling has weakened, which is helping to boost the UKs competitiveness
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Sterling takes a pounding Source: Thomson Datastream; HSBC Sterling weaker US dollar / £ (L axis) euro / £ (R axis) HSBC forecast
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The age of austerity The recession will soon end, but the recovery will be long and fragile
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A deep recession HSBC forecast Source: ONS UK: annual GDP growth Long-term average
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The age of austerity The recession will soon end, but the recovery will be long and fragile Without radical action it could take the best part of 20 years before the public finances are back to normal
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Breaking the elastic Sustainable Investment Rule Source: ONS, HM Treasury HM Treasury forecasts (Budget Report 2009)
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The age of austerity The recession will soon end, but the recovery will be long and fragile Without radical action, it could take the best part of 20 years to return the public finances to normal Credit is likely to remain somewhat restricted into the medium term
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Mind the gap! Source: Bank of England Financial Stability Report October 2008 * Customer lending less customer funding, where customer refers to all non-bank borrowers and depositors
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Closing the gap Growth rates required to restore customer funding gap to 2003 levels… … in three years … in one year Source: Bank of England Financial Stability Report October 2008
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A historical perspective 1972-771978-831988-931998-20032007-11 first oil shock second oil shock yuppie flu dotcom bust subprime contagion Source: ONS, HSBC 1929-34 The Great Depression
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