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UK and global recovery prospects

UK and global recovery prospects. Dr Andrew Sentance Monetary Policy Committee, 2006-2011. Global growth concerns Progress of the UK recovery Economic prospects for UK and Europe Key messages for business. The global economy – 3 months ago. Percentage annual change in world GDP.

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UK and global recovery prospects

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  1. UK and global recovery prospects Dr Andrew Sentance Monetary Policy Committee, 2006-2011

  2. Global growth concerns • Progress of the UK recovery • Economic prospects for UK and Europe • Key messages for business

  3. The global economy – 3 months ago Percentage annual change in world GDP Source: June 2011 IMF World Economic Outlook Update

  4. World economic growth * EU, US and 11 other economies accounting for 85% of world GDP Source: IMF World Economic Outlook, April 2011, and The Economist % per annum change in GDP in G-13 economies*

  5. How have forecasts changed? % per annum change in GDP, consensus forecast for 2011 * US, EU and 11 other major economies making up 85% of world GDP Source: The Economist

  6. Prospects for 2012 % per annum change in GDP, latest consensus forecast * US, EU and 11 other major economies making up 85% of world GDP Source: The Economist

  7. Why is global growth slowing? Policy tightening in Asia-Pacific in response to inflationary concerns Temporary disruption from Japanese tsunami/earthquake Relatively high inflation squeezing disposable income and consumer spending Structural factors continuing to hold back growth in US and other western economies

  8. Global inflation on the rise % per annum change in consumer prices * US, EU and 11 other major economies making up 85% of world GDP Source: The Economist

  9. The global recovery in context % per annum change in GDP * US, EU and 11 other major economies making up 85% of world GDP Source: IMF and The Economist

  10. UK economic growth * Weighted average of manufacturing and services output % per annum change in economic activity

  11. Recession and recoveries compared Source: Office for National Statistics. Forecasts from Treasury Independent Panel of Forecasters and The Economist. Forecasts and real time data are based on GDP including oil and gas output. Non-oil GDP, Index 100 = cyclical peak

  12. Employment in UK recessions Source: Office for National Statistics, Labour Force Survey Index of employment, 100 = cyclical peak Number of quarters from employment peak

  13. Unemployment in UK recessions Source: Office for National Statistics, Labour Force Survey Unemployment rate, % of labour force Number of quarters from employment peak

  14. UK and Euro area growth * Excluding oil and gas, for historic data; Source: IMF and ONS, updated with Economist consensus forecasts % per annum change in GDP

  15. UK and Euro inflation Source: IMF, updated with Economist consensus forecasts % per annum change in consumer prices index

  16. Large official inflation forecast errors Source: Bank of England Mean of forecast percentage annual increases in consumer prices

  17. Why has UK inflation been so high? Global inflationary pressures Decline in value of the pound Limited effect of spare capacity Recovery in demand and favourable pricing climate

  18. Sterling depreciation since 2007 Rebased to 100 in January 2005 Source: Thompson Datastream and Bank for International Settlements *: Effective exchange rate

  19. Episodes of Sterling depreciation Index, base year = 100 Number of years from start of period Source: Bank for International Settlements

  20. Services inflation stubbornly high Source: Office for National Statistics % per annum change in consumer prices

  21. Sustaining growth over the recovery Private sector needs to be the engine of growth Long-term and consistent plan for deficit reduction Monetary policy normalisation – shift from emphasis on stimulus to stability Supply-side and structural policies to support business confidence, investment and growth

  22. Prospects for the euro area Slowing global growth to hamper export-led growth in Germany and “core” economies Fiscal consolidation in peripheral economies also a drag on growth Growth “soft patch” likely in late 2011 and early 2012 All forecasts conditional on orderly resolution of current deficit crisis

  23. Public debts and deficits compared % of GDP in 2010 Source: IMF, April 2011 World Economic Outlook

  24. Prospects for the UK economy High inflation and VAT rise currently “squeezing out” consumer growth Fall-back in inflation next year and stronger wage growth should support consumer spending in 2012 Growth likely to strengthen during 2012, supported by pick-up in global economy Inflation set to remain above target – tough decisions ahead for the MPC

  25. Key messages for business Recovery set to continue, with growth rebounding from “soft patch” caused by high inflation Asia remains a key engine of growth in world economy, but slow growth (c.2% per annum) likely to be the norm for western economies Relatively high inflation – containing upward wage and non-wage cost pressure a continuing issue Continued bouts of financial market volatility likely, but limited consequences for UK business Euro will survive, but pound likely to remain weak unless MPC policy changes

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