Prospects for the UK economy.

Kirby, Simon ; Carreras, Oriol ; Meaning, Jack 等

Introduction

The publication of the final GDP estimates before the election were disappointing. The Office for National Statistics' (ONS) preliminary estimate of GDP suggests that economic growth slowed to 0.3 per cent per quarter in the first quarter of this year, half the rate in the preceding three months. There are undoubtedly concerns that this quarter is the harbinger of a pervasive slowdown. However, this is probably just a temporary deceleration, partly related to a fall in construction output, a sector that is particularly volatile. We expect economic growth, consistent with a modest recovery, to resume from the second quarter of this year.

We should not be surprised by a quarter, or two, of relatively subdued growth: quarterly GDP growth over the period since the end of the Great Recession has a standard deviation of 0.36; much the same as the variation in the distribution of quarterly growth rates in the decade preceding the crisis. Growth this year is expected to resume via a pick-up in consumer spending growth, supporting by the positive terms of trade effect from the sharp fall in oil prices. Nonetheless, the weak rate of growth in the first three months of this year is enough to lower this year's growth rate to 2.5 per cent per annum, a downward revision of 0.4 percentage point compared with our forecast published three months ago (figure 2). Over the forecast horizon we continue to expect growth to persist at around this rate. Such a performance would be consistent with the general notion of a continued economic recovery.

The sharp fall in the oil price has already permeated through to the headline inflation figures. CPI inflation has now reached 0 per cent per annum (figure 3). These recent outturns have been marginally weaker than we had expected, but are within the bounds of confidence intervals we publish in each Review. Our modal forecast is for a modest fall in the level of prices in the latter half of this year as the lagged effects of commodity and exchange rate developments pass through to consumer prices. As we note in Kirby and Meaning (2014, 2015) the impact of such developments on the rate of inflation are only temporary. As figure 3 highlights, at the two-year horizon, we expect the rate of inflation to have returned close to the Bank of England's target rate of 2 per cent per annum. But as the fan chart highlights, there are considerable uncertainties with regards to the future.

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

The rate of unemployment has continued to decline. We estimate that it reached 5.6 per cent in the first quarter of this year (figure 4). Robust employment growth has been a key feature of the UK's economic recovery. Employment growth is expected to expand by around 1 3/4 per cent this year. From 2016 onwards we expect employment to grow in step with the labour force, maintaining the rate of unemployment at around 5 1/4 per cent. Again, there is considerable uncertainty over the future path of unemployment, but we attach a reasonably low probability to unemployment rising back above the Bank's short-lived forward guidance metric of 7 per cent.

While the rapid fall in unemployment, due to a large expansion of employment, is obviously welcome, the persistent poor productivity performance is a major concern, and a fundamental risk to the outlook. Productivity growth has persistently failed to materialise to any meaningful degree, even as the economic recovery became entrenched. Recent months are no exception to this.

The absence of a clear understanding of why the productivity numbers have performed as they have adds to the uncertainty surrounding any assumptions for their future development. In the long run, productivity growth is the key driver of rising living standards. If a shock has somehow permanently lowered the rate of productivity growth, our expectations of future increases in living standards could well smack of hubris with hindsight.

This also has serious implications for the current mix of macro policy. For example, the OBR currently assumes productivity growth of 2.4 per cent per annum over the period 2016-19. With this view of the macroeconomy underpinning projections, the current government would ensure the structural budget deficit is eliminated in 2017-18. However, if productivity performance is considerably weaker, then the fiscal consolidation plans as currently announced are too modest. In the most extreme variant of this scenario, both fiscal and monetary policy could be perceived as operating in a highly procyclical fashion.

The other alternative is that there will be a sustained snap-back in productivity growth rates as we go through a sustained period of catch-up. In this scenario fiscal consolidation plans could be viewed as unnecessary since the return of persistent robust growth will eliminate the structural deficit naturally.

Our modal forecast assumes a gradual resumption of productivity growth, but on a more muted path than both the OBR and the Bank of England suggest. Given this baseline projection, the current government's announced fiscal plans are expected not just to eliminate the budget deficit, but to return the public sector to an absolute surplus.

It is these discretionary fiscal policy assumptions that we have built into this forces. As the OBR has highlighted, we are in the odd position where the official fiscal plans are unlikely to be implemented after the election.

The main parties' implied fiscal rules allow for significantly looser fiscal policy over the coming Parliament. It is probable that this is exactly how fiscal policy will evolve. Kirby (2015) illustrates the macroeconomic implications of the different intended fiscal stances of the main parties. These scenarios suggested this would lead to slightly higher growth and employment for the next few years, combined with slightly higher short-term interest rates and a slower rate of reduction in the deficit and debt to GDP ratio. The effects of these differences on the macroeconomy are probably modest. This is not to belittle important differences in policy implications for different sections of our society and different parts of the economy.

[FIGURE 3 OMITTED]

[FIGURE 4 OMITTED]

If the next government does run looser fiscal policy, then it will do so at extraordinarily low borrowing costs. We expect 10-year government bond yields to reach only 2 per cent at the end of this year and just 2.5 per cent in 2016. If additional spending by government were to be focused on infrastructure, education and science and innovation, it could also provide significant long-run returns through positive effects on future productivity performance. As we converge on the general election it is unfortunate that the main parties, and in particular the Conservative and Labour parties, have instead focused on what they will not do. Committing themselves to not raising tax rates on some of the main sources of government revenues is not an example of sensible policymaking.

If there was concern over the outlook due to the election, we should expect to see a depreciation of sterling as a greater risk premium is demanded by investors in sterling assets. However, as we highlight in the Monetary Conditions section, sterling's trade-weighted exchange rate sterling has noticeably appreciated in recent months. Freely floating exchange rates can be moved as much by external as by domestic factors. As such, any uncertainty about election outcomes manifesting as an increased risk premium could be more than offset by the depreciation of the euro due to the expansionary monetary policy of the ECB and current brinksmanship over the disbursements of the final tranches of the Greek bailout package. It is also entirely possible that current public discourse overstates the degree to which domestic political uncertainty has an impact on economic and financial decisions.

Monetary conditions

The path for monetary policy implied by market interest rates is changed little from three months ago. The first increase of 25 basis points is still priced in for July 2016, although this had temporarily slipped back to September 2016 over the course of the quarter. The current expectation then is that rates will increase by an additional 25 basis points roughly once every two quarters, reaching around 1.75 per cent in 2020. As in February, underlying our own forecast is a slightly earlier rate rise, in the first quarter of next year, and a marginally quicker pace of tightening, averaging 50 basis points a year. Even under this path, Bank Rate reaches just 3 per cent per annum by the end of 2021.

February's exchange of letters between the Governor of the Bank of England and the Chancellor of the Exchequer was notable for its discussion of the potential for the MPC to cut Bank Rate below 1/2 per cent. In 2009 this was considered the effective lower bound of policy in the UK, as anything below this, it was feared, would cause financial stability risks by damaging the profitability of a fragile financial sector. However, now the banking sector is in ruder health, it appears that, should it be required, the MPC sees a Bank Rate of 1/2 per cent or less as practically achievable.

In March the Bank's Chief Economist, Andrew Haldane, said that having this additional 50 basis points in the MPC's arsenal would halve the risk of consumer price deflation at the two-year horizon, from 20 to 10 per cent (Haldane, 2015). The confidence intervals around our own forecast suggest a similar probability of deflation two years ahead, but we find this is little changed whether the lower bound is set at zero or 1/2 per cent.

[FIGURE 5 OMITTED]

What is more, when we use NiGEM to simulate the impact of a 50 basis point cut on the wider economy, we see little effect. Ten-year rates fall by just 7 basis points and the annual rate of inflation increases by just 0.08 percentage point. This is likely to be an underestimate of the actual impact as it fails to account for the signalling and symbolic dimension of such a move, but the magnitude of these channels is far from certain. Should downside risks emerge of sufficient magnitude to warrant looser monetary policy, it is likely to require more than the fine-tuning implied by a 50 basis points cut in Bank Rate. Any effective policy prescription would more than likely require an interest rate cut to be accompanied by other policy measures, such as communication to shape expectations about the path of rates and further quantitative and credit easing. For now though, it looks as if talk of loosening policy is nothing more than a hypothetical. The minutes of April's MPC meeting carried a clear implication that the "exceptionally slow" pace of rate increases expected by markets underestimated the probability of tightening in the near term, highlighting that data from the Euro Area was stronger than had been anticipated in the February Inflation Report. The minutes also revealed that for two members the decision on whether or not to raise rates was finely balanced, widely viewed as a pre-cursor to them voting for an increase.

There exist risks to both sides of our central expectation on monetary policy. On the downside it is key that inflation expectations remain anchored in the medium term. Though they have fallen slightly at shorter horizons, they are relatively robust at two years and beyond. However, should they begin to drift lower, we would expect the Bank of England to react to reassure markets that the 2 per cent target remains credible.

[FIGURE 6 OMITTED]

The other key downside risk derives from the economic and political uncertainty surrounding Greece. A disorderly default or a break-up of the Euro Area will not only weigh on activity in our main trading partner, but also cause stress in financial markets. Then the MPC would have to act not only to ease the monetary stance, but most probably to provide liquidity support as required by the UK financial system to isolate it from the worst of the spillover.

On the upside, the major risk is that labour market productivity fails to pick up as strongly as forecast by both us and the MPC. In the April Minutes, the Committee highlighted that "it was unlikely that activity growth could be maintained at its current pace for long, without generating greater inflation in wages and prices, in the absence of some material improvement in labour productivity". In that instance, it may be that inflationary pressure accelerates quickly and policy has also to move quickly, increasing rates to curtail an overheating economy.

Monetary policy cycles in advanced economies continue to drive global exchange rate movements. In the November 2014 Review we showed how the majority of the appreciation of sterling between the beginning of 2013 and mid-2014 could be explained by the movements in expected policy paths in the UK, US and Euro Area, and a simple uncovered intereest rate parity condition (UIP) condition (Kirby and Meaning, 2014). Since February the trade-weighted price of sterling has appreciated a further 3 per cent, mostly driven by a 624 per cent appreciation against the euro. With the expected path of policy in the UK little changed, this is largely the result of monetary loosening in the Euro Area, where the ECB's asset purchase programme has started to lower longer-term interest rates and push back expectations of future rate rises.

Whilst the effective exchange rate has risen, sterling has fallen bilaterally relative to the dollar for the last eight months as talk of tightening by the Federal Reserve has intensified. The first rate rise in the US is now expected by markets a full nine months before the MPC moves.

Over the course of the next year or two, we expect the divergence of monetary cycles to continue in this fashion. As the Bank of England and Federal Reserve begin to tighten policy, interest rate differentials with Europe will widen and sterling should appreciate against the euro by just under 11 per cent while depreciating against the dollar by around 10 per cent in 2015. In both cases these movements are greater than we forecast three months ago. Given its larger trade weighting, the euro appreciation should dominate the effective exchange rate, which is expected to rise 4.3 per cent in 2015. Beyond this, as policy cycles come back in to line, we should see the price of sterling level at around 1.35 euros and 1.50 dollars in the medium term.

Prices and earnings

Consumer prices failed to grow in the twelve months to March, with zero inflation for the second consecutive month. This was marginally weaker than our expectation published in February's Review. This near-term weakness is largely attributable to the fall in global oil prices, but there are signs of inflation softening more generally as core 12-month CPI inflation fell to 1 per cent in March. Part of this will be second round effects of the oil shock as it works its way through supply chains and their rigidities, but other factors, such as the continued appreciation of sterling, will also be weighing on price growth.

Oil prices have risen by around $10 since our February forecast, slightly more than we had assumed. The Eneregy Information Administration (EIA) projections which underpin our forecast have also been revised up this year and are now expected to reach $70 a barrel by the end of 2015. This should moderate some of the disinflationary impact we had expected in the very near term. For 2016 and beyond though, the projected growth rates are little changed, so the impact on domestic inflation over the more medium term is more or less consistent with our view three months ago. The depreciation of sterling against the dollar and our updated view of the bilateral exchange rate over the next few years act to accentuate the upward revision of oil prices when viewed in sterling terms.

The exchange rate has a wider role to play for UK domestic prices. As Kirby and Meaning (2014) noted in our November Review, the significant appreciation of sterling between the beginning of 2013 and mid-2014 was expected to weigh down on the annual inflation rate by about Vi per cent last year and this, before waning into 2016. However, since then, sterling's trade-weighted price has risen a further 3 per cent and we have revised up the expected appreciation in our forecast for 2015 by 3 percentage points. Results from our global econometric model would suggest that this would lower the inflation rate by an additional 0.2 percentage points through this year and next, prolonging the headwind caused by the exchange rate pass-through. Of course, the exchange rate, inflation and monetary policy are inextricably tied and if inflation were to surprise on the downside it is likely that expectations of a policy rate increase would be pushed back, causing a depreciation of sterling relative to our central forecast, and thus less downward pressure on prices.

Some of the disinflationary impact of the exchange rate movements can already be seen in import prices. In the year to March, the ONS' import price index fell 5.8 per cent. Almost all of this is attributable to the movement in the UK effective exchange rate, which appreciated 5.5 per cent over the same period, with the remaining fall coming from inflation differentials. (1) Given that until recently economic cycles between the UK and her main trading partners were relatively synchronised, the link between exchange rate movements and import prices is unsurprising. A simple correlation test on the two series yields a coefficient of -0.85. In our forecast import prices continue to contract strongly this year by more than domestic prices, and will rise by less in 2016, so will weigh down on the CPI index until 2017 when the exchange rate appreciation has levelled out and inflation rates between the UK and Europe are once again back in sync.

Recent data may be beginning to provide early signs of second-round price effects from January's oil price collapse. As the oil price has rebounded, headline measures of producer input and output prices have seen their annual decline stabilise, falling 13 and 1.7 per cent respectively in the twelve months to March, compared with 13.5 and 1.7 per cent in February. However, core measures, excluding oil effects, have experienced a pronounced weakness in the first quarter of this year. This is to be expected as the lower costs of energy and oil inputs are passed along the supply chain to products more generally, and also as the passing of time allows for expiring contracts to be adjusted to take account of the lower oil price.

The RPI measure of inflation echoed movements in CPI, falling to 0.9 per cent in March from 2 per cent back in November. The wedge between the two indices has been historically low in recent years, due largely to lower mortgage interest payments which feature in RPI but not CPI. In our forecast, this wedge widens over the next four or five years as tightening monetary policy leads to higher interest payments for mortgages. In the medium term this stabilises back to its longer-run average of around 1/2 percentage point.

Real earnings have picked up in recent months, expanding by 2.2 per cent per annum in February compared to the same month in 2014. This is predominantly a result of the weak inflation outturns rather than a significant shift in nominal earnings (figure 8). We expect real earnings growth to continue, averaging 1.7 per cent in 2015 and 1.3 in 2016. However, underpinning this growth is a change in emphasis from low inflation to quickening nominal wage growth brought about by improved productivity performance. Should this productivity performance fail to materialise, then this represents a substantial downside risk to our central forecast, but it is likely that nominal wages would begin to rise regardless. Without increases in productive capacity, the amount of slack in the labour market will be soon absorbed and labour shortages will begin to put pressure on wages. This is obviously a less appealing cause of wage growth.

[FIGURE 7 OMITTED]

[FIGURE 8 OMITTED]

Over 2013, the earnings growth that occurred was driven in large part by increases in hours. In recent months this has diminished and actual hours worked have appeared to stabilise around their pre-crisis level. We expect them to fall moderately over the coming years as higher hourly earnings mean that workers can maintain their standard of living whilst working less. This should increase the space for non-inflationary employment growth within the economy.

Components of demand

The preliminary estimate of GDP made by the ONS suggests the economy expanded by 0.3 per cent in the first quarter of this year, half of the rate of growth experienced in the preceding three-month period (see figure 9). This is the weakest rate of growth since the end of 2012, but as figure 9 shows, we assume this is simply a blip. As figure 9 shows, the return of a sustained period of above trend growth has been driven by domestic demand, and we expect this to persist this year and next, the first quarter of this year notwithstanding.

Realising the current government's ambition for more balanced economic growth, i.e. a narrowing of the current account deficit through the shrinking of the trade deficit and a positive contribution from net trade have proved somewhat elusive. The UK's trade deficit is broadly unchanged at around 2 per cent of GDP, while net trade has subtracted a cumulative 1 percentage point from economic growth between 2010 and 2014.

In 2015 and 2016 (figure 9) we expect this pattern of net trade's negative contribution to offset some of the continuing robust contribution of consumption to GDP growth. However, we do expect the UK economy to transition to a phase of more balanced growth further into the future. Such gains in net trade growth come not from miraculous gains in competitiveness, but rather through the sustained increase in demand within the Euro Area. Recovery in the Euro Area is a key determinant of the UK's economic recovery beyond 2016 and also poses the most acute known downside external risk to the UK economy.

In the final quarter of 2014, net trade contributed 0.8 percentage point to GDP growth, the first positive contribution since the second quarter of 2013. The improvement in net trade resulted from a sharp increase in exports of 5.6 per cent on a yearly basis. Driven by growth in the manufacturing sector, specifically consumer goods and semi-manufactured goods which grew by 9.2 and 7 per cent respectively in the three months to December when compared to the previous quarter. Recent data suggest that this is temporary, as quarterly data for goods exports up to February had slowed when compared to the three months to January, which include the final two months of 2014 which were exceptionally strong. We therefore expect net trade to return to deficit in the first quarter of 2015.

[FIGURE 9 OMITTED]

One possible concern for the external sector is from the recent appreciation of Sterling of 12 per cent since the start of 2013. Figure 10 shows that throughout the financial crisis the depreciation of the effective exchange rate was not matched with a one-to-one change in the price competitiveness of UK exporting firms. Furthermore, the net rate of return for the non-financial corporate sector remained relatively stable throughout the financial crisis. Taken together this may suggest that firms maintained or even increased margins, as a result we expect that firms will adjust margins and maintain price competitiveness throughout our forecast period. Conversely, the terms of trade improvement will lead to an increase in imports as consumers and businesses switch from domestic products and services to relatively cheaper foreign ones.

Exports had regained their pre-crisis levels by the final quarter of 2010, however as figure 10 shows this has been driven by exports outside the Euro Area, while exports to Europe remain below the pre-crisis levels. As mentioned in the February 2014 Review, Europe still constitutes the most important trading partner for the UK, accounting for over half of all goods and services exports. As such our forecast for exports and net trade in general remain dependant on a recovery in Europe. If the Euro Area recovers in line with our forecast, then net trade will begin to contribute positively to GDP growth from the middle of 2016, and throughout our forecast period.

Our forecast for the volume of government consumption is based on the projections of the OBR published in its March 2015 Economic and Fiscal Outlook. Data outturns suggest the volume of government consumption continued to expand throughout 2014, increasing by 1.7 per cent from the level in 2013. A key difference between the OBR's December and March forecasts is the assumption governing the growth of Total Managed Expenditure (TME), which is now forecast to grow at the same rate as nominal GDP rather than at the rate of the government consumption deflator. This implies a significant upward revision for government consumption growth from our previous forecast to around 1.4 per cent per annum from zero growth in 2019. As noted by Kirby (2015) the effect of the increase in government consumption growth is likely to lead to only a modest increase in GDP as a result. Given the current forecasts, the profile for government consumption now resembles the 'implied conservative' plans rather than the 'coalition plans' from that analysis. Furthermore, this means that government spending is no longer forecast to be the lowest it has been historically.

[FIGURE 10 OMITTED]

Household sector

Private consumption remains the largest contributor to growth, adding 1.8 out of 3 percentage points during the last quarter of 2014 on a year-on-year basis. 2014 registered a significant growth in consumer spending as well as a modest increase in real income, which has led to a reduction in the saving ratio and a small increase in the household debt-to-income ratio. House prices have kept rising, which has had a positive income effect on homeowners, albeit at a slower pace.

Household consumption increased by 0.6 per cent in the fourth quarter of 2014 compared to the previous quarter, most of the growth coming from services and expenditure of UK tourists abroad. Spending in durable goods has also increased, albeit at a slower rate than in the previous quarter. Retail sales for March 2015 have been buoyant, with volume and value increases on a year-on-year basis. We project household expenditure to remain strong over 2015, growing by 3.6 per cent, based on expectations of strong wage and employment growth, and to moderate over 2016.

Real disposable income grew by 0.6 per cent during 2014, significantly less than our estimate of 1.6 per cent from our previous Review. We have increased our estimate of income growth for 2015 from 3.6 in our previous Review to 4.7 per cent. The difference is due primarily to a reduction in the rate of consumer price inflation, which pushes real income up (see figure 11). In particular, in our previous Review we predicted an inflation rate of 0.9 per cent in 2015 while we now project a contraction in prices of 0.2 per cent. We forecast that real disposable income growth will moderate from 2016 onwards as inflation picks up and unemployment stabilises at around 5 1/4 per cent. In line with our previous Review, real disposable income per capita will grow over the medium term at around 2 per cent.

Slower growth in real disposable income and a strong outturn of consumer spending has translated into a fall in household saving. The saving ratio--excluding net adjustment for equity held in pension funds--fell from 0.9 to -0.2 per cent in 2014 (see figure A6). We forecast the saving ratio will increase in 2015 to 0.9 per cent, before falling to 0.3 per cent in 2016, and then growing steadily in the near term; a view consistent with our projections of income growth outstripping spending growth in the medium term. Household debt to income ratio has increased compared to our previous Review, from 143.0 to 144.2 per cent. In line with our projections for the saving ratio, we expect the debt-to-income ratio to fall from 2015 onwards, simply due to growth in nominal income surpassing growth in nominal debt.

[FIGURE 11 OMITTED]

Mortgage approvals seem to have stabilised after a sharp fall during the first half of 2014. The Bank of England's February Money and Credit report highlights a fall in mortgage approvals of 1.6 per cent in January 2015 and a subsequent increase of 1.8 per cent in February. A similar picture is provided by HMRC data on property transactions, which show that after a significant drop in February 2014 transactions have remained fairly constant until January 2015. There has been a substantial rebound in February 2015 with a monthly growth rate of 4.7 per cent which could, as we mentioned in our previous Review, be the consequence of the modification of residential stamp duty introduced in the Autumn Statement 2014.

Recent house price data supports our view of a softening of the housing market. House prices are still rising but the growth rate has been declining since the second half of 2014. According to our preferred measure of house prices, the seasonally and mix-adjusted index from the ONS, prices in the UK have increased by 7.1 per cent in February 2015 compared to twelve months earlier; a much smaller figure compared to the 12.1 per cent increase in September 2014. The Nationwide house price index, which acts as one of the leading indicators for the ONS measure as it is derived earlier in the house purchase process, provides a similar picture: on a 12-month basis, house prices in March increased by 5.1 per cent; in June 2014 they grew by 11.9 per cent. Also from Nationwide, house price inflation has slowed for the whole of the UK except in the North of England. It also reports a significant slowdown in Fondon. Year-on-year, prices in the capital grew by 12.7 per cent during the first quarter of 2015, compared to a growth rate of 17.8 per cent in the last quarter of 2014. According to the Royal Institute of Chartered Surveyors (RICS), house prices will still grow during 2015 due to lack of supply, but at a slower pace, reaching a rate of 3 per cent growth over the last three months of 2015. We expect house prices to increase by 8.2 per cent in 2015 and by 3.1 per cent in 2016.

According to the Halifax, Nationwide, and our own database, the house price-to-earnings ratio has reached historically high levels and is projected to keep increasing. The Bank of England has kept Bank Rate close to zero since March 2009, affording 'cheap' mortgage rates to households; it may pose a risk to the economy. Households are highly indebted, which makes them vulnerable to sudden increases in interest rates. In fact, interest rates have already started increasing. Markets currently expect the Bank of England to keep Bank Rate low until at least 2016 but this has not prevented the spread between lending and deposit rates increasing by around 55 basis points in 2014. This comes from a reduction of around 60 basis points in deposit rates and a fall of just 5 basis points in lending rates. While the nominal return on saving has fallen further, we have also seen a modest pick-up in income gearing. Interest payments have risen relative to gross disposable incomes in recent quarters (figure A5). This may be a sign of indebted households increasing their mortgage payments as budget constraints ease, but if this pattern persists it does pose a downside risk to our consumer spending forecasts.

Supply conditions

Although business investment has shown robust growth between 2010 and 2014, it stalled in the third quarter of 2014 and fell by 0.9 per cent in the final quarter. Given the relative volatility of business investment, this drop in investment is not particularly significant. Nevertheless there is some concern that uncertainty regarding developments in the Euro Area and potential spillovers to UK domestic markets is weighing on firms' investment decisions. The Confederation of British Industry's Business Optimism Index--which ranges from -100 to +100, where 0 represents neutrality fell to 8 in the fourth quarter of 2014, down from a post-crisis peak of 33 in the second quarter of 2014 before rising slightly to 15 in the first quarter of 2015. This compares to a trough of -64 in the first quarter of 2009 (see figure 12). Businesses surveyed by the CBI in the first quarter of this year reported the main factors limiting investment as: uncertainty about demand (50 per cent of respondents), inadequate net return on proposed investments (42 per cent) and shortage of internal finance (15 per cent). This ties in with research by Banerjee et al. (2015) who conclude that uncertainty about the future state of the economy is a bigger factor influencing investment decisions than poor financing conditions. We predict growth in business investment of 4.9 per cent in 2015, rising to 5.9 per cent in 2016 before settling at around 1.5 per cent per annum in the medium term.

The annual rate of growth in the stock of lending to UK businesses has been contracting since 2009 and remained negative in the fourth quarter of 2014, although less severe than in recent years by most measures. Respondents to the Bank of England's Credit Conditions Survey reported that the availability of credit was unchanged for small and medium sized enterprises, and increased for large businesses in the final quarter of 2014. This follows several quarters of improving credit conditions for businesses, with the net balance of 84 per cent of respondents to the Deloitte CFO Survey, who reported that credit was available and 72 per cent who reported that credit was cheap in the fourth quarter of 2014. This compares to a net balance of around 90 per cent who considered credit hard to get and over 80 per cent who considered credit to be costly at the start of 2009.

[FIGURE 12 OMITTED]

Housing investment fell by 1.1 per cent in the final quarter of 2014,

but this still represents a rise of 5.9 per cent year-on-year. Data from the Department for Communities and Local Government (DCLG) show that seasonally adjusted housing starts in England in the last quarter of 2014 were estimated at 29,800, 10 per cent lower compared to the previous quarter and 9 per cent lower than the same quarter one year earlier. In contrast, housing completions were estimated at 30,760, 1 per cent higher than the previous quarter and 8 per cent higher than the same quarter one year earlier. DCLG (2012) reports that the time taken to construct a new home from start to completion can be anywhere between a few months and several years. Rudimentary analysis of the data indicates that completions are most strongly correlated with starts lagged by three quarters, thus assuming this average lag is not just a spurious product of a small sample size, we expect aggregate completion statistics to start declining year-on-year in around the third quarter of this year. Housing starts and completions are still 39 and 36 per cent respectively below their peak in the second quarter of 2007. Our forecast is for housing investment to grow by 4 1/2 per cent in 2015, rising to around 11 per cent in 2016 before falling to around 6 per cent in the medium term.

[FIGURE 13 OMITTED]

[FIGURE 14 OMITTED]

The unemployment rate continued to fall, reaching 5.6 per cent of the labour force in the first quarter of 2015. This compares to an average unemployment rate of 11.4 per cent for the Euro Area. We expect the unemployment rate to average around 514 per cent this year, and to remain at this level through to the end of our forecast horizon. The youth unemployment rate has also fallen to 16.1 per cent in the three months to February, down from a peak of 22.5 in the three months to September 2011. This level is still significantly higher than an average of around 13 per cent between 2000 and the start of the crisis. However, these figures are skewed upwards by increasing numbers of young people enrolling in fulltime education, reducing the labour force aged 16-24 to a smaller population of less skilled individuals. It is worth bearing in mind that the increasing number of full-time students may be, at least in part, a consequence of higher unemployment rates and the weak economy of 2008-12. Data from the Labour Force Survey shows that the number of 16-24 year-olds who are not in employment, education or training (NEET) has fallen to 13.5 per cent in the first quarter of 2014, which represents a return to the average level in the years leading up to the crisis (see figure 13). While this return to pre-crisis levels is welcome, it does also highlight the long-standing structural issue in the UK labour market, and the waste of potential that these figures imply.

Productivity continues to disappoint. In the fourth quarter of 2014, whole economy output per worker, per job and per hour worked were all still below pre-crisis levels, with output per hour worked the worst affected at 1.7 per cent below its peak in the first quarter of 2008. Sluggish productivity growth is driven by poor performance in the production sector, with output per hour worked in the fourth quarter of 2014 at 5.7 per cent below its pre-crisis peak. On the other hand, all measures of productivity in manufacturing and services have met or exceeded their pre-crisis peaks, with output per job in manufacturing showing the strongest recovery, reaching 6.4 per cent above its level in the first quarter of 2008.

The robust outturn in employment and hours worked appears to be pulling productivity down, particularly output per hour worked. Wage growth has also been weak, with falling real consumer and real producer wages between 2012 and 2014, reflecting poor productivity growth. Indeed falling wages may be a cause of sluggish labour productivity growth if, as suggested by Carney (2014), low wages have led to firms hiring more labour instead of investing in labour augmenting capital. Barnett et al. (2014) find evidence to support the view that reduced capital investment and sub-optimal resource allocation are a drag on productivity. We expect the labour input to stabilise from 2016 onwards, and grow at a more muted pace than in recent years. Such a projection is consistent with unemployment at around 514 per cent and a resumption of the gradual downward trend in average hours worked. Beyond 2016, the economic growth is dependent on a rebound in productivity growth. Indeed we expect average productivity to grow by 0.6 per cent in 2015, before accelerating to 1.2 per cent in 2016. Productivity growth of around 2 per cent over the medium term is not a view of the long-run steady state growth rate but rather a modest period of catch-up. That this performance will not materialise is a significant downside risk to the outlook.

Public finances

The outturns for fiscal aggregates for fiscal year 2014-15 suggest the gap between the public sector's revenues and expenditures narrowed more than had previously been expected. The narrowing gap was more a consequence of weaker than projected current expenditure. Public sector net borrowing, excluding the public sector banks, reached 87.3 billion [pounds sterling] (4.9 per cent of nominal GDP), down from 98.5 billion [pounds sterling] (5.5 per cent of GDP) in 201314. Public sector net borrowing has now shrunk in each fiscal year since its recent peak of 152 billion [pounds sterling] (10.6 per cent of GDP) in 2009-10.

Our projections are similar to those of the OBR. In both instances borrowing is expected to narrow further. The discretionary policy decisions announced in Budget 2015 have a limited effect on these projections. Overall, Budget 2015 was fiscally neutral, even if it was far from politically so. Presenting a fiscally neutral package extended the government's approach of the past three years' Budgetary statements.

We assume that tax rates evolve in a manner consistent with announced policy changes. The revenues themselves are endogenously determined within our model NiGEM. Tax revenues grow in line with the tax base, adjusting for the announced tax policy changes. The speed and composition of nominal economic growth are the key determinants of changes in the tax base. We assume that as nominal wage growth starts to outstrip the rate of inflation, fiscal drag will further support the buoyancy of future tax revenues. We expect the total tax take to rise from 35.5 per cent of GDP in 2014-15 to just over 36 per cent by 2019-20. Thus, the tax take returns to around its average level for the 20-year period prior to the onset of the financial crisis (figure 15).

The OBR's forecast incorporates the government's policy assumptions for the future path of TME. For the period beyond 2015-16 the projections for government consumption and investment are derived as the difference between TME and annually managed expenditures (AME). The OBR's projections imply that government consumption will start to rise towards the end of the next Parliament. The forecast revision introduced by the OBR for 2019-20 amounts to a 28.5 billion [pounds sterling] (1.3 per cent of GDP) increase in government consumption.

Approximately half of this change is due to projections for lower social transfers and interest payments. The remaining half is due to a change in the government's assumption that total spending will now grow in line with nominal GDP.

We assume that government consumption evolves as the OBR projects and that the government broadly meets its net investment ambitions over the next Parliament. The other components of expenditure are endogenously determined in our model.

Even with this significant loosening of policy on current plans, the government is still expected to record a surplus of 9.3 billion [pounds sterling] (0.4 per cent of GDP) in 2019-20. Nonetheless, this is a significantly smaller absolute surplus than we had expected based on the government's Autumn Statement, where policy assumptions built into our forecast implied an absolute surplus of 34.5 billion [pounds sterling] (1.5 per cent of GDP).

The magnitude of public sector net borrowing is expected to shrink in each year of the forecast, mainly through significant spending restraint. Borrowing is expected to be just over 4 per cent of GDP this fiscal year (78.6 billion [pounds sterling]) before falling to around 2 1/2 per cent of GDP in 2016-17. We expect the government to run a primary surplus (the government budget balance excluding interest payments) in fiscal year 2017-18, one year before the first year of absolute surpluses is recorded.

[FIGURE 15 OMITTED]

As noted in Kirby (2015) the implied fiscal stances from each of the main political parties' own fiscal rules had suggested looser fiscal policy than the government's Autumn Statement. The coalition government's changes in assumptions about TME spending in 2019-20 are consistent with the parties' looser fiscal stances and reinforce the particular uncertainty over how fiscal policy will evolve after 7 May 2015. This uncertainty stems not just from the unknown composition of the next government, but also from the lack of detail on fiscal policy over the next Parliamentary term. It is probable that government consumption will be higher, given the concerns over the ability for expected services to be delivered by non-ring fenced departments and local government. The other unknown is whether taxes will rise. At the moment the political debate revolves around modest amounts of revenues, but as Paul Johnson of the IFS has highlighted, newly elected governments have a habit of raising taxes once in power.

Saving and investment

In table A9 we disaggregate the economy into three broad sectors: household, corporate and government. For each of these sectors, if investment is greater than savings then that sector is a net borrower and vice versa. The aggregate of these three sectors is the current account for the UK economy, which describes the aggregate borrowing/lending position of the whole economy. If in deficit, it implies that the economy is not saving enough to fund domestic investment and must therefore be externally financed. It is not possible to infer whether the levels of capital are optimal from the position of the current account, just the immediate financing needs of the economy.

Household saving reached 4.1 per cent of GDP in 2014, the lowest level since 2008. Despite this moderation, our view of the evolution of household saving remains consistent with our previous forecast. We expect the saving rate to have reached its trough in 2014 and that through 2015 and onwards, it will increase. This will be driven by a larger increase in real personal disposable income than consumption, as growth in real consumer wages picks up in the near term as a result of the low inflationary environment relieving the pressure on household budgets. From 2016, we expect that, as price growth picks up, eroding household purchasing power, consumption growth moderates. However, real wages are expected to continue to grow driven by the resumption of productivity growth, the key to increasing living standards in the long run. By 2019, we expect household saving to reach around 6 per cent of GDP.

Housing investment is currently around 5 per cent of GDP, around the same levels as the turn of the millennium, and we expect it will increase throughout our forecast period, reaching 6 1/2 per cent. This implies that households' net lending positions will be broadly in balance by the end of our forecast period.

Our forecasts for corporate investment and saving are both expected to be marginally lower in the near term than our forecast published in the February 2015 Review. The uncertainty around the Euro Area developments is expected to weigh down on business investment throughout 2015. As this dissipates, from 2016 onwards, we expect corporate investment to rebound slightly. We forecast that corporate investment will increase to around 11 1/4 per cent of GDP in 2016. By 2019 we expect corporate investment to be in the region of 11 1/2 as a per cent of GDP.

Theory would suggest that the net position of the corporate sector would be that of a borrower from the rest of the economy, but since 2003 the opposite has been a persistent feature of the UK economy. This trend appears to have reversed in 2013 and 2014; the corporate sector's net position has been broadly neutral, reduced from a net lender of 3.3 per cent of GDP in 2009. This reduction has occurred on both sides of the balance with investment gradually picking up from its trough of 8 per cent of GDP in 2009, and corporate saving falling dramatically between 2012 and 2013; it has continued to fall since. We expect the sector to remain broadly neutral in 2015, and to become a net borrower throughout the rest of our sample, requiring around 3 per cent of GDP from the rest of the economy by 2019 to fund investment.

Government dis-saving has continued to shrink since its trough in 2009 of 5.7 per cent of GDP. If the mandated fiscal plans evolve as laid out in the March 2015 Budget, we expect that dis-saving will continue to narrow throughout our forecast period with government returning to the position of gross saver towards the end of 2016. If the path of the economy evolves as we forecast, by 2019 we expect government saving to be around 3 per cent of GDP. Throughout the past three years government investment as a percentage of GDP has remained relatively stable at around 2 per cent. This trend is expected to continue throughout our forecast period given current plans for the capital budget. In the near term, the government will remain a net borrower from the rest of the economy; however as government dis-saving is eliminated the government will become a net lender to the rest of the economy. We expect this to occur around 2018, and by 2019 the government is forecast to be a net lender of around 1 per cent of GDP to the rest of the economy.

Important determinants of the UK current account are the net income payments. Historically, income earned abroad by domestic companies has been greater than that of income earned by foreign companies in the UK. The average surplus on net income between 1998 and 2011 was 1 per cent of GDP. However, from 2012 onwards this position has reversed, with the net deficit in 2014 reaching 1.9 per cent of GDP. This period corresponds with a sharp decline in the balance of the primary account with Europe and to a lesser extent the US. We assume that the deficit on net factor income is a transitory phenomenon being led by two factors. Firstly, rates of return on foreign liabilities should increase as the Federal Reserve and the European Central Bank begin monetary tightening. Secondly, resumption in growth in the Euro Area should lead to an improvement in profits and therefore the return from direct investment. Europe contributes 45 per cent of total credits in the primary income account, with the US contributing around 25 per cent (ONS, 2014). We therefore expect that the improvement in net factor income will be heavily tied to the performance of each of these economies, especially the Euro Area. Should Federal Reserve or ECB tightening occur later than in our forecast, or equally the recovery in the Euro Area not materialise as soon as expected, net income would likely stay in deficit longer.

[FIGURE 16 OMITTED]

The aggregate of our three sectors implies that in 2015 the UK will require around 5 per cent of GDP financing from the rest of the world. We expect this to remain relatively flat through to 2017 as the reduction in the net lending positions of the government and households are offset by the increase in the net borrowing position of the corporate sector. From 2017 onwards, as the net borrowing position of the corporate sector stabilises, and the government becomes a net lender to the rest of the economy, we expect the current account deficit to reduce. By 2019 we predict that the UK economy will require around 2.5 to 3 per cent of GDP of finance from abroad for domestic investment. The main risk surrounding this forecast is on the downside from net income; if the balance of net income remains persistently in deficit rather than moving back to surplus as we have forecast, the current account would be expected to record significantly larger deficits as a percentage of GDP than we currently project.

Medium term

Table A10 presents the modal view of how the economy will evolve in the medium term. Moving from the current disequilibrium of the UK economy we expect growth rates in excess of long run potential, which we estimate to be 2 per cent per annum, in order for the negative output gap to close. The projections exclude any future shocks to the economy from either domestic or external sources, however we realise that such events will occur and move the path of the economy away from the projections presented. To illustrate this uncertainty we publish fan charts. Figure 17 shows that there is a more than 1 in 10 chance that the economy will grow by more than 334 per cent per annum and a less than 10 per cent chance that the economy will grow by less than 1 per cent per annum in 2019.

Driving our medium-term forecasts is a resumption of productivity growth, which underpins growth in wages and GDP per capita. We forecast that productivity growth will pick up in a gradual fashion, with the sharpest increase occurring in 2016 before increasing more gradually from 2017 onwards. We expect that by 2020-24 productivity will be growing at around 2 per cent per annum. As with our GDP growth estimates, this implies productivity catch-up above its long-run average, which we estimate to be just below 2 per cent per annum.

The return in productivity coincides with a general decline in the labour input into production; we expect a fall in hours worked as wages increase. By 2020-24 we expect labour input to grow at 0.4 per cent per annum, while average earnings are expected to grow at 3.3 per cent per annum. The sharp falls in unemployment seen recently are expected to have finished and we expect it to remain stable from 2015 onwards at around 5.2 per cent.

[FIGURE 17 OMITTED]

We know that fiscal policy will not evolve as we have forecast, with the main political parties outlining fiscal policies within their manifestos which differ from those announced in the March budget. However, the next parliament is likely to involve further fiscal consolidation differing in its speed and composition. That being said, if fiscal policy were conducted given the current plans, we expect public sector net borrowing to fall, with the government returning to surplus by 2018. Between 202024 we predict that the government would run a surplus of around 0.2 per cent of GDP and therefore would not require external borrowing to finance public investment. The public debt stock is expected to remain stable at around 80 per cent of GDP until 2017, after which it begins to fall. By 2020-24 we forecast that it will have fallen to around 65 per cent of GDP.

In our baseline we expect monetary tightening to occur gradually, with the first interest rate rise occurring in 2016. By 2020-24 we forecast that the interest rate will be between 2 1/2 to 4 per cent per annum. We believe that the risks around this interest rate path are broadly balanced. On the downside, negative economic shocks which could slow down the economy, such as Greece defaulting or decoupling of expectations as a result of the near-term low inflationary environment, could delay interest rate rises. Conversely, if the amount of slack in the economy has been over estimated this could lead to a sharper than expected rebound in inflation bringing forward rate rises.

Exchange rates over the longer term will be determined by the normalisation of external monetary policy, especially the policy of the ECB and the Federal Reserve. We predict that the real effective exchange rate will appreciate 0.8 per cent by 2020-24. This appreciation will occur as normalisation of UK monetary policy is expected to occur before that of the ECB, however this is likely to be partially offset as the Federal Reserve normalisation is expected to occur before that of the Bank of England.

After 2016, the current account deficit is expected to reduce through to the end of our forecast period; by 2020-24 we expect the deficit to be 2.0 per cent of GDR Over this period the trade balance as a percentage of GDP remains stable, as such the improvements in the current account are due to net income returning to surplus. If the net income deficit represents a structural change rather than a transitory movement, as we assume, the current account deficit would be significantly larger than we have forecast.

The risks to this forecast, both internal and external, are significant. Externally, these risks are likely to be weighted to the downside; such scenarios as a Greek default would likely cause disruption to European and UK banking systems and would probably lead to a significant decline in domestic demand conditions in Europe, depressing UK exports and subsequently GDP. The main internal risk occurs from the timing and strength of productivity growth; should this occur later or slower than we forecast, GDP growth would be slower than we forecast.

Appendix--Forecast details

[FIGURE A1 OMITTED]

[FIGURE A2 OMITTED]

[FIGURE A3 OMITTED]

[FIGURE A4 OMITTED]

[FIGURE A5 OMITTED]

[FIGURE A6 OMITTED]

[FIGURE A7 OMITTED]

[FIGURE A8 OMITTED]

[FIGURE A9 OMITTED]

[FIGURE A10 OMITTED]

Table A1. Exchange rates and interest rates

                               UK exchange rates

                                                        FTSE
                  Effective     Dollar      Euro     All-share
                  2011 = 100                           index

2009                 100.50       1.57       1.12       2040.8
2010                 100.12       1.55       1.17       2472.7
2011                 100.00       1.60       1.15       2587.6
2012                 104.21       1.59       1.23       2617.7
2013                 102.92       1.56       1.18       3006.2
2014                 111.05       1.65       1.24       3136.6
2015                  115.85      1.49       1.38       3292.8
2016                 116.10       1.48       1.38       3450.5
20/7                 116.21       1.50       1.37       3604.2
2018                 116.39       1.52       1.35       3784.8
2019                 116.57       1.54       1.34       4005.3

2014  Q1             109.11       1.66       1.21       3148.9
2014  Q2             110.66       1.68       1.23       3171.0
2014  Q3             112.46       1.67       1.26       3161.3
2014  Q4             111.96       1.58       1.27       3065.3

2015  Q1             115.36       1.51       1.35       3207.6
2015  Q2             115.97       1.48       1.39       3300.8
2015  Q3             116.05       1.48       1.39       3322.0
2015  Q4             116.02       1.48       1.39       3340.9

2016  Q1             116.05       1.48       1.39       3392.6
2016  Q2             116.09       1.48       1.38       3434.1
2016  Q3             116.12       1.48       1.38       3462.7
2016  Q4             116.15       1.49       1.38       3512.5

Percentage
  changes
2009/2008             -10.4      -15.5      -10.6        -14.7
2010/2009              -0.4       -1.2        3.8         21.2
2011/2010              -0.1        3.7       -1.2          4.6
2012/2011               4.2        -1.1       7.0          1.2
2013/2012              -1.2       -1.3       -4.5         14.8
2014/2013               7.9        5.3        5.4          4.3
2015/2014               4.3       -9.7       10.9          5.0
2016/2015               0.2       -0.3        0.4          4.8
2017/2016               0.1        1.0       -0.9          4.5
2018/2017               0.2        1.5        -1.1         5.0
2019/2018               0.2        1.4        -1.1         5.8
2014Q4/2013Q4           5.3       -2.2        6.5         -1.0
2015Q412014Q4           3.6       -6.6        9.5          9.0
2016Q4/2015Q4           0.1        0.5       -0.6          5.1

                                  Interest rates

                  3-month     Mortgage    10-year    World      Bank
                   rates      interest     gilts      (a)     Rate (b)

2009                  1.2          4.0        3.7      2.0       0.50
2010                  0.7          4.0        3.6      1.6       0.50
2011                  0.9          4.1        3.1      1.8       0.50
2012                  0.8          4.2        1.8      1.6       0.50
2013                  0.5          4.4        2.4      1.3       0.50
2014                  0.5          4.4        2.5      1.0       0.50
2015                  0.6          4.5        1.7      0.8       0.50
2016                  1.0          4.6        2.3      1.3       1.00
20/7                  1.5          4.8        2.8      1.9       1.50
2018                  2.0          5.0        3.2      2.3       2.00
2019                  2.4          5.3        3.5      2.7       2.50

2014  Q1              0.5          4.4        2.8      1.3       0.50
2014  Q2              0.5          4.4        2.7      0.9       0.50
2014  Q3              0.6          4.5        2.6      0.8       0.50
2014  Q4              0.6          4.5        2.1      0.8       0.50

2015  Q1              0.6          4.5        1.6      0.7       0.50
2015  Q2              0.6          4.5        1.6      0.7       0.50
2015  Q3              0.6          4.5        1.8      0.8       0.50
2015  Q4              0.6          4.5        2.0      0.9       0.50

2016  Q1              0.8          4.6        2.1       1.1      0.75
2016  Q2              0.9          4.6        2.3      1.2       0.75
2016  Q3               1.1         4.7        2.4      1.3       1.00
2016  Q4              1.2          4.7        2.5      1.5       1.00

Percentage
  changes
2009/2008
2010/2009
2011/2010
2012/2011
2013/2012
2014/2013
2015/2014
2016/2015
2017/2016
2018/2017
2019/2018
2014Q4/2013Q4
2015Q412014Q4
2016Q4/2015Q4

Notes: We assume that bilateral exchange rates for the first quarter
of this year are the average of information available to 15 April
2015. We then assume that bilateral rates remain constant for the
following two quarters before moving in-line with the path implied by
the backward-looking uncovered interest rate parity condition based on
interest rate differentials relative to the US. (a) Weighted average
of central bank intervention rates in OECD economies, (b) End of
period.

Table A2. Price indices

2011=100

                   Unit       Imports      Exports     Wholesale
                  labour      deflator     deflator      price
                  costs                                index (a)

2009                 99.1         89.9         89.9         95.8
2010                100.3         93.4         94.5         97.3
2011                100.0        100.0        100.0        100.0
2012                101.9         99.2         99.6        101.1
2013                103.4        100.4        101.1        101.9
2014                103.8         96.5         98.9        102.8
2015                105.1         91.5         94.8        102.9
2016                105.7         93.9         97.1        102.9
2017                107.0         97.4         99.4        104.2
2018                108.4        100.0        101.5        106.2
2019                109.7        101.9        103.4        108.2

Percentage
  changes
2009/2008             4.4          1.9          3.6          1.4
2010/2009             1.2          3.9          5.1          1.5
2011/2010            -0.3          7.1          5.8          2.8
2012/2011             1.9         -0.8         -0.4           1.1
2013/2012             1.4          1.2          1.5          0.8
2014/2013             0.4         -3.9         -2.2          0.9
2015/2014             1.2         -5.2         -4.2          0.1
201612015             0.7          2.6          2.4          0.0
2017/2016             1.2          3.7          2.4          1.2
2018/2017             1.3          2.7          2.2          1.9
2019/2018             1.2          1.9          1.9          1.9
2014Q4/13Q4            1.2        -4.3         -3.8          0.6
2015Q4/14Q4           0.3         -3.6         -1.8          0.1
2016Q4/15Q4           0.9          4.2          2.7          0.5

                World oil     Consump-       GDP
                  price         tion       deflator
                  ($)(b)      deflator     (market
                                           prices)

2009                 61.8         92.6         94.9
2010                 78.8         96.7         97.9
2011                108.5        100.0        100.0
2012                110.4        102.1        101.7
2013                107.1        104.0        103.5
2014                 97.8        105.6        105.2
2015                 60.2        105.4        106.2
2016                 79.8        106.5        107.2
2017                 81.2        108.6        108.7
2018                 82.8        110.9        110.8
2019                 84.5        113.1        113.1

Percentage
  changes
2009/2008           -35.4          1.6          2.0
2010/2009            27.6          4.4          3.2
2011/2010            37.6          3.4          2.1
2012/2011             1.8          2.1          1.7
2013/2012            -3.0          1.9          1.8
2014/2013            -8.7          1.6          1.7
2015/2014           -38.4         -0.2          0.9
201612015            32.5           1.1         0.9
2017/2016             1.7          1.9          1.4
2018/2017             2.0          2.1          1.9
2019/2018             2.0          2.0          2.0
2014Q4/13Q4         -30.3          1.3          1.3
2015Q4/14Q4          -7.2         -0.6          1.0
2016Q4/15Q4          14.8          1.4          0.8

                   Retail price index

                All items    Excluding     Consumer
                              mortgage      prices
                              interest      index

2009                 90.9         90.7         92.7
2010                 95.1         95.0         95.7
2011                100.0        100.0        100.0
2012                103.2        103.2        102.8
2013                106.4        106.4        105.5
2014                108.9        109.0        107.0
2015                109.6        110.0        106.9
2016                 111.7        111.9       108.0
2017                115.5        114.6         110.0
2018                119.9        117.6        112.3
2019                124.2        120.6        114.5

Percentage
  changes
2009/2008            -0.5          2.0          2.2
2010/2009             4.6          4.8          3.3
2011/2010             5.2          5.3          4.5
2012/2011             3.2          3.2          2.8
2013/2012             3.0          3.1          2.6
2014/2013             2.4          2.4          1.4
2015/2014             0.6          0.9         -0.1
201612015             1.9          1.7          1.0
2017/2016             3.4          2.4          1.9
2018/2017             3.8          2.6          2.1
2019/2018             3.6          2.5          2.0
2014Q4/13Q4           1.9          2.0          0.9
2015Q4/14Q4           0.4          0.9         -0.1
2016Q4/15Q4           2.7          2.0          1.4

Notes: (a) Excluding food, beverages, tobacco and petroleum products,
(b) Per barrel, average of Dubai and Brent spot prices.

Table A3. Gross domestic product and components of expenditure

billion [pounds sterling], 2011 prices

                Final consumption       Gross capital formation
                   expenditure

             Households    General       Gross       Changes in
              & NPISHM      govt.        fixed      inventories
                                       investment       (b)

2009            1034.6        337.1        240.6          -16.0
2010            1038.3        337.2        254.9            5.7
2011            1039.1        337.3        260.8            4.3
2012            1050.8        345.2        262.7            6.5
2013            1068.5        344.2        271.6           10.2
2014            1094.9        350.0        292.8           13.3
2015            1133.9        352.5        304.4           10.3
2016            1166.8        349.6        324.6           10.0
2017            1187.6        346.6        339.0           10.0
2018            1210.5        345.9        350.8           10.0
2019            1237.2        350.9        361.5           10.0
Percentage changes
2009/2008         -3.1          1.2        -14.4
2010/2009          0.4          0.0          5.9
2011/2010          0.1          0.0          2.3
2012/2011           1.1         2.3          0.7
2013/2012          1.7         -0.3          3.4
2014/2013          2.5          1.7          7.8
2015/2014          3.6          0.7          4.0
2016/2015          2.9         -0.8          6.6
2017/2016          1.8         -0.9          4.5
2018/2017          1.9         -0.2          3.5
2019/2018          2.2          1.4          3.0

Decomposition of growth in GDP
2009              -2.0          0.2         -2.5           -0.3
2010               0.2          0.0          0.9            1.4
2011               0.1          0.0          0.4           -0.1
2012               0.7          0.5          0.1            0.1
2013                1.1        -0.1          0.5            0.2
2014               1.6          0.4          1.3            0.2
2015               2.3          0.1          0.7           -0.2
2016               1.9         -0.2          1.2            0.0
2017               1.2         -0.2          0.8            0.0
2018               1.2          0.0          0.6            0.0
2019               1.4          0.3          0.6            0.0

              Domestic      Total         Total
               demand      exports        final
                             (c)       expenditure

2009            1593.2        445.1        2039.4
2010            1636.1        472.8        2109.6
2011            1641.5        499.5        2141.0
2012            1665.1        502.8        2167.9
2013            1694.5        510.2        2204.7
2014            1751.0        513.5        2264.5
2015            1801.1        536.0        2337.1
2016            1850.9        566.2        2417.1
2017            1883.3        595.6        2478.9
2018            1917.2        623.6        2540.8
2019            1959.7        650.0        2609.7
Percentage changes
2009/2008         -4.9         -8.2          -5.6
2010/2009          2.7          6.2           3.4
2011/2010          0.3          5.6           1.5
2012/2011          1.4          0.7           1.3
2013/2012          1.8          1.5           1.7
2014/2013          3.3          0.6           2.7
2015/2014          2.9          4.4           3.2
2016/2015          2.8          5.6           3.4
2017/2016          1.7          5.2           2.6
2018/2017          1.8          4.7           2.5
2019/2018          2.2          4.2           2.7

Decomposition of growth in GDP
2009              -5.0         -2.4          -7.4
2010               2.8          1.8           4.5
2011               0.3          1.7           2.0
2012               1.5          0.2           1.7
2013               1.8          0.5           2.3
2014               3.4          0.2           3.6
2015               2.9          1.3           4.3
2016               2.9          1.7           4.6
2017               1.8          1.6           3.5
2018               1.9          1.5           3.4
2019               2.3          1.4           3.7

               Total      Net trade      GDP at
              imports                    market
                (c)                      prices

2009             476.6        -31.5       1561.6
2010             518.2        -45.3       1591.5
2011             523.3        -23.8       1617.7
2012             539.6        -36.8       1628.3
2013             547.4        -37.1       1655.4
2014             559.2        -45.8       1702.2
2015             590.2        -54.2      1 744.2
2016             628.0        -61.8       1786.4
2017             645.4        -49.7       1830.8
2018             659.9        -36.3       1878.2
2019             679.3        -29.2       1927.7
Percentage changes
2009/2008         -9.8                      -4.3
2010/2009          8.7                       1.9
2011/2010          1.0                       1.6
2012/2011          3.1                       0.7
2013/2012          1.4                       1.7
2014/2013          2.2                       2.8
2015/2014          5.5                       2.5
2016/2015          6.4                       2.4
2017/2016          2.8                       2.5
2018/2017          2.2                       2.6
2019/2018          2.9                       2.6

Decomposition of growth in GDP
2009               3.2          0.7         -4.3
2010              -2.7         -0.9          1.9
2011              -0.3          1.4          1.6
2012              -1.0         -0.8          0.7
2013              -0.5          0.0          1.7
2014              -0.7         -0.5          2.8
2015              -1.8         -0.5          2.5
2016              -2.2         -0.4          2.4
2017              -1.0          0.7          2.5
2018              -0.8          0.7          2.6
2019              -1.0          0.4          2.6

Notes: (a) Non-profit institutions serving households, (b) Including
acquisitions less disposals of valuables and quarterly alignment
adjustment, (c) Includes Missing Trader Intra-Community Fraud, (d)
Components may not add up to total GDP growth due to rounding and the
statistical discrepancy included in GDP.

Table A4. External sector

              Exports of   Imports of   Net trade
              goods (a)    goods (a)     in goods
                                           (a)

                     billion [pounds sterling],
                        2011 prices (b)

2009              261.2        355.3        -94.1
2010              289.4        398.9       -109.5
2011              309.2        405.7        -96.5
2012              306.6        416.2       -109.6
2013              305.1        419.1       -114.0
2014              305.0        430.2       -125.2
2015              320.7        457.0       -136.3
2016              340.7        489.9       -149.3
2017              358.0        504.7       -146.7
2018              374.5        516.4       -141.9
2019              390.2        531.8       -141.6

Percentage changes
2009/2008         -10.1        -10.8
2010/2009          10.8         12.2
2011/2010           6.8          1.7
2012/2011          -0.8          2.6
2013/2012          -0.5          0.7
2014/2013           0.0          2.7
201512014           5.1          6.2
201612015           6.2          7.2
201712016           5.1          3.0
2018/2017           4.6          2.3
201912018           4.2          3.0

              Exports of   Imports of   Net trade
               services     services        in
                                         services

                     billion [pounds sterling],
                        2011 prices (b)

2009              184.0        120.5         63.5
2010              183.4        119.3         64.1
2011              190.3        117.6         72.7
2012              196.2        123.4         72.8
2013              205.1        128.3         76.8
2014              208.5        129.1         79.4
2015              215.3        133.2         82.1
2016              225.6        138.1         87.5
2017              237.6        140.7         97.0
2018              249.2        143.5        105.7
2019              259.8        147.4        112.4

Percentage changes
2009/2008          -5.9         -7.3
2010/2009          -0.4         -1.0
2011/2010           3.8         -1.4
2012/2011           3.1          4.9
2013/2012           4.6          4.0
2014/2013           1.6          0.6
201512014           3.3          3.2
201612015           4.8          3.7
201712016           5.3          1.8
2018/2017           4.9          2.0
201912018           4.3          2.8

                 Export        World       Terms of     Current
                 price       trade (d)    trade (e)     balance
              competitive-
                ness (c)

                             2011=100                  % of GDP

2009                 94.7         86.0        100.0         -2.8
2010                 96.4         94.7        101.2         -2.6
2011                100.0        100.0        100.0         -1.7
2012                101.3        102.2        100.4         -3.7
2013                100.7        104.8        100.7         -4.5
2014                104.9        108.6        102.4         -5.5
2015                100.8        113.4        103.6         -4.7
2016                101.1        119.6        103.4         -5.0
2017                 99.8        124.7        102.0         -4.6
2018                 99.0        129.9        101.5         -3.5
2019                 98.4        135.4        101.5         -2.7

Percentage changes
2009/2008            -4.2        -10.6          1.6
2010/2009             1.8         10.0          1.1
2011/2010             3.8          5.6         -1.2
2012/2011             1.3          2.2          0.4
2013/2012            -0.6          2.6          0.3
2014/2013             4.1          3.6          1.7
201512014            -3.9          4.4          1.2
201612015             0.2          5.5         -0.2
201712016            -1.3          4.2         -1.3
2018/2017            -0.7          4.2         -0.5
201912018            -0.7          4.2          0.0

Notes: (a) Includes Missing Trader Intra-Community Fraud, (b) Balance
of payments basis, (c) A rise denotes a loss in UK competitiveness,
(d) Weighted by import shares in UK export markets, (e) Ratio of
average value of exports to imports.

Table A5. Household sector

               Average      Compen-       Total        Gross
                 (a)       sation of     personal    disposable
               earnings    employees      income       income

               2011=100         billion [pounds sterling],
                                     current prices

2009               95.8        792.0       1299.7        999.8
2010               99.1        817.0       1358.0       1052.8
2011              100.0        827.8       1383.5       1067.9
2012              102.2        849.4       1424.2        1107.0
2013              104.2        875.9       1457.3        1129.8
2014              105.7        904.1       1492.4        1154.1
2015              107.1        937.7       1557.8       1205.8
2016              109.5        966.7       1613.7       1245.4
2017              112.7       1002.4       1684.6       1298.1
2018              116.3       1042.1       1768.6       1362.1
2019              119.9       1082.6       1856.8       1428.3
Percentage changes
2009/2008           1.9         -0.1          2.1          3.9
2010/2009           3.5          3.2          4.5          5.3
2011/2010           0.9          1.3          1.9          1.4
2012/2011           2.2          2.6          2.9          3.7
2013/2012           1.9          3.1          2.3          2.1
2014/2013           1.5          3.2          2.4          2.2
201512014           1.3          3.7          4.4          4.5
201612015           2.3          3.1          3.6          3.3
2017/2016           2.9          3.7          4.4          4.2
201812017           3.1          4.0          5.0          4.9
2019/2018           3.2          3.9          5.0          4.9

                              Final consumption
                 Real            expenditure
              disposable
                income       Total       Durable
                 (b)

                    billion [pounds sterling],
                           2011 prices

2009             1079.2       1034.6         91.2
2010             1088.6       1038.3         89.3
2011             1067.9       1039.1         90.4
2012             1084.6       1050.8         96.9
2013             1086.1       1068.5        102.8
2014             1092.4       1094.9         111.1
2015             1143.8       1133.9        121.4
2016             1168.8       1166.8        127.0
2017             1195.3       1187.6        130.9
2018             1228.3       1210.5        135.1
2019             1262.3       1237.2        138.8
Percentage changes
2009/2008           2.3         -3.1         -2.4
2010/2009           0.9          0.4         -2.1
2011/2010          -1.9          0.1          1.3
2012/2011           1.6           1.1         7.2
2013/2012           0.1          1.7          6.1
2014/2013           0.6          2.5          8.0
201512014           4.7          3.6          9.3
201612015           2.2          2.9          4.6
2017/2016           2.3          1.8          3.1
201812017           2.8          1.9          3.2
2019/2018           2.8          2.2          2.7

                Saving       House         Net
                ratio      prices (d)    worth to
                 (c)                      income
                                         ratio(e)

               per cent     2011=100

2009                9.3         94.1          6.2
2010               11.0        101.0          6.3
2011                8.6        100.0          6.6
2012                8.0        101.6          6.8
2013                6.4        105.2          6.7
2014                5.9        115.8          7.4
2015                6.9        125.3          7.7
2016                6.4        129.1          7.6
2017                6.9        130.4          7.4
2018                7.9        131.4          7.2
2019                8.5        132.0          7.1
Percentage changes
2009/2008                       -7.8
2010/2009                        7.2
2011/2010                       -1.0
2012/2011                        1.6
2013/2012                        3.5
2014/2013                       10.0
201512014                        8.3
201612015                        3.1
2017/2016                        1.0
201812017                        0.8
2019/2018                        0.5

Notes: (a) Average earnings equals total labour compensation divided
by the number of employees, (b) Deflated by consumers' expenditure
deflator, (c) Includes adjustment for change in net equity of
households in pension funds, (d) Office for National Statistics, mix-
adjusted, (e) Net worth is defined as housing wealth plus net
financial assets.

Table A6. Fixed investment and capital

billion [pounds sterling], 2011 prices

                           Gross fixed investment

               Business     Private      General       Total
              investment    housing     government
                              (a)

2009              138.7         52.3         49.5        240.6
2010              143.7         60.5         50.6        254.9
2011              152.3         62.2         46.3        260.8
2012              158.7         60.2         43.7        262.7
2013              167.2         64.0         40.4        271.6
2014              179.7         69.8         43.3        292.8
20/5              187.0         73.0         44.5        304.4
20/6              198.3         80.9         45.4        324.6
2017              204.7         88.1         46.2        339.0
2018              209.2         94.8         46.8        350.8
2019              212.2        100.7         48.6        361.5
Percentage changes
2009/2008         -14.4        -31.6         12.6        -14.4
2010/2009           3.7         15.7          2.3          5.9
2011/2010           6.0          2.8         -8.5          2.3
2012/2011           4.2         -3.1         -5.5          0.7
2013/2012           5.3          6.2         -7.7          3.4
2014/2013           7.5          9.0          7.2          7.8
201512014           4.0          4.6          2.7          4.0
2016/2015           6.0         10.9          2.1          6.6
201712016           3.3          8.9          1.8          4.5
2018/2017           2.2          7.6          1.3          3.5
201912018           1.4          6.2          3.8          3.0

                                           Capital stock
                            Corporate
                 User         profit
                cost of      share of     Private       Public
              capital (%)    GDP (%)                     (b)

2009                15.8         24.7       2954.5        757.8
2010                15.7         24.1       2965.0        780.9
2011                15.3         25.0       2980.7        794.9
2012                13.3         24.6       3005.0        815.1
2013                12.4         24.9       3033.1        841.7
2014                13.8         24.9       3076.3        858.5
20/5                13.3         25.0       3126.6        876.0
20/6                13.6         25.6       3191.9        893.8
2017                14.0         26.0       3265.8        911.9
2018                14.4         26.6       3345.6        930.0
2019                14.7         27.4       3428.6        949.3
Percentage changes
2009/2008                                      0.0          4.3
2010/2009                                      0.4          3.0
2011/2010                                      0.5          1.8
2012/2011                                      0.8          2.5
2013/2012                                      0.9          3.3
2014/2013                                      1.4          2.0
201512014                                      1.6          2.0
2016/2015                                      2.1          2.0
201712016                                      2.3          2.0
2018/2017                                      2.4          2.0
201912018                                      2.5          2.1

Notes: (a) Includes private sector transfer costs of non-produced
assets, (b) Including public sector non-financial corporations.

Table A7. Productivity and the labour market Thousands

                     Employment

              Employees    Total (a)

2009              25092        29156
2010              25017        29229
2011              25117        29376
2012              25214        29697
2013              25516        30043
2014              25939        30726
2015              26565        31291
2016              26776        31529
2017              26978        31793
2018               27196       32074
2019               27387       32325
Percentage changes
2009/2008          -1.9         -1.6
2010/2009          -0.3          0.2
2011/2010           0.4          0.5
2012/2011           0.4           1.1
2013/2012           1.2          1.2
2014/2013           1.7          2.3
2015/2014           2.4          1.8
2016/2015           0.8          0.8
2017/2016           0.8          0.8
2018/2017           0.8          0.9
2019/2018           0.7          0.8

                 ILO                    Population
              unemploy-      Labour         of
                 ment      force (b)     working
                                           age

2009               2403        31559        38529
2010               2497        31725        38759
2011               2593        31969        39243
2012               2572        32268        39441
2013               2476        32519        39699
2014               2027        32753        39984
2015               1769        33060        40267
2016               1771        33300        40582
2017               1775        33567        40934
2018               1755        33828        41261
2019               1741        34066        41694
Percentage changes
2009/2008          34.5          0.5          0.5
2010/2009           3.9          0.5          0.6
2011/2010           3.8          0.8          1.2
2012/2011          -0.8          0.9          0.5
2013/2012          -3.7          0.8          0.7
2014/2013         -18.1          0.7          0.7
2015/2014         -12.7          0.9          0.7
2016/2015           0.1          0.7          0.8
2017/2016           0.2          0.8          0.9
2018/2017           -1.1         0.8          0.8
2019/2018          -0.8          0.7           1.1

                   Productivity              Unemployment, %
                   (2011 = 100)
                                         Claimant    ILO unem-
               Per hour    Manufact-       rate       ployment
                             uring                      rate

2009               97.2         90.5          4.6          7.6
2010               98.7         97.9          4.6          7.9
2011              100.0        100.0          4.7          8.1
2012               98.8         98.3          4.8          8.0
2013               98.6         98.2          4.2          7.6
2014               98.7         99.7          3.1          6.2
2015               99.0        101.1          2.3          5.4
2016              100.6        104.4          2.4          5.3
2017              102.4        107.3          2.4          5.3
2018              104.3        110.4          2.3          5.2
2019              106.3        113.9          2.3          5.1
Percentage changes
2009/2008          -1.6         -2.7
2010/2009           1.5          8.2
2011/2010           1.3          2.2
2012/2011          -1.2         -1.7
2013/2012          -0.3         -0.2
2014/2013           0.1          1.5
2015/2014           0.3          1.4
2016/2015           1.6          3.3
2017/2016           1.8          2.8
2018/2017           1.8          2.9
2019/2018           1.9          3.2

Notes: (a) Includes self-employed, government-supported trainees and
unpaid family members, (b) Employment plus ILO unemployment.

Table A8. Public sector financial balance and borrowing requirement

billion [pounds sterling], fiscal years

                                               2012-13    2013-14

Current           Taxes on income                363.9      374.3
receipts:         Taxes on expenditure           209.7      221.7
                  Other current receipts          21.1       23.7
                  Total                          594.7      619.7
                  (as a % of GDP)                 35.8       35.8
Current           Goods and services             341.4      347.2
expenditure:      Net social benefits paid       217.2      220.1
                  Debt interest                   36.5       35.5
                  Other current expenditure       51.8       52.0
                  Total                          646.9      654.7
                  (as a % of GDP)                 38.9       37.8
Depreciation                                      32.8       33.9
Surplus on public sector                         -85.0      -68.9
  current budget (a)
(as a % of GDP)                                   -5.1       -4.0
Gross investment                                  68.4       60.2
Net investment                                    35.6       26.3
(as a % of GDP)                                    2.2        1.5
Total managed expenditure                        715.3      714.9
(as a % of GDP)                                   43.0       41.3
Public sector net borrowing                      120.5       95.2
(as a % of GDP)                                    7.3        5.5
Financial transactions                            23.2       25.8
Public sector net cash requirement                97.4       69.4
(as a % of GDP)                                    5.9        4.0
Public sector net debt (% of GDP)                 77.4       79.8
GDP deflator at market prices                    101.9      104.0
  (2011 = 100)
Money GDP                                       1663.1     1732.8
Financial balance under                           -8.3       -5.7
  Maastricht (% of GDP) (b)
Gross debt under Maastricht                       85.8       87.3
  (% of GDP) (b)

                                               2014-15    2015-16

Current           Taxes on income                387.7      402.9
receipts:         Taxes on expenditure           229.9      237.2
                  Other current receipts          24.2       21.0
                  Total                          641.7      661.1
                  (as a % of GDP)                 35.5       35.3
Current           Goods and services             353.1      353.6
expenditure:      Net social benefits paid       225.9      226.4
                  Debt interest                   35.1       35.1
                  Other current expenditure       51.3       57.0
                  Total                          665.4      672.0
                  (as a % of GDP)                 36.8       35.9
Depreciation                                      35.0       37.3
Surplus on public sector                         -58.7      -48.3
  current budget (a)
(as a % of GDP)                                   -3.3       -2.6
Gross investment                                  65.0       68.5
Net investment                                    30.0       31.2
(as a % of GDP)                                    1.7        1.7
Total managed expenditure                        730.4      740.5
(as a % of GDP)                                   40.4       39.6
Public sector net borrowing                       88.7       79.5
(as a % of GDP)                                    4.9        4.3
Financial transactions                            -0.5       11.8
Public sector net cash requirement                89.2       67.7
(as a % of GDP)                                    4.9        3.6
Public sector net debt (% of GDP)                 81.6       81.6
GDP deflator at market prices                    105.5      106.5
  (2011 = 100)
Money GDP                                       1807.2     1870.3
Financial balance under                           -5.7      --4.5
  Maastricht (% of GDP) (b)
Gross debt under Maastricht                       89.4       89.6
  (% of GDP) (b)

                                               2016-17    2017-18

Current           Taxes on income                425.4      447.0
receipts:         Taxes on expenditure           246.0      255.5
                  Other current receipts          20.6       20.4
                  Total                          692.0      722.9
                  (as a % of GDP)                 35.8       35.9
Current           Goods and services             343.9      336.1
expenditure:      Net social benefits paid       230.8      236.8
                  Debt interest                   38.3       38.8
                  Other current expenditure       58.4       60.2
                  Total                          671.4      671.9
                  (as a % of GDP)                 34.8       33.4
Depreciation                                      39.5       41.5
Surplus on public sector                         -19.0        9.5
  current budget (a)
(as a % of GDP)                                   -1.0        0.5
Gross investment                                  69.3       70.4
Net investment                                    29.8       28.9
(as a % of GDP)                                    1.5        1.4
Total managed expenditure                        740.8      742.3
(as a % of GDP)                                   38.4       36.9
Public sector net borrowing                       48.8       19.4
(as a % of GDP)                                    2.5        1.0
Financial transactions                           -19.6      -15.3
Public sector net cash requirement                68.4       34.7
(as a % of GDP)                                    3.5        1.7
Public sector net debt (% of GDP)                 80.8       78.1
GDP deflator at market prices                    107.5      109.2
  (2011 = 100)
Money GDP                                       1931.6     2012.7
Financial balance under                           -3.0       -1.4
  Maastricht (% of GDP) (b)
Gross debt under Maastricht                       89.3       87.2
  (% of GDP) (b)

                                               2018-19    2019-20

Current           Taxes on income                471.1      498.1
receipts:         Taxes on expenditure           266.1      277.6
                  Other current receipts          20.3       21.2
                  Total                          757.4      796.9
                  (as a % of GDP)                 36.0       36.1
Current           Goods and services             337.3      358.5
expenditure:      Net social benefits paid       245.3      253.7
                  Debt interest                   38.7       38.3
                  Other current expenditure       62.4       64.7
                  Total                          683.6      715.2
                  (as a % of GDP)                 32.5       32.4
Depreciation                                      43.5       45.5
Surplus on public sector                          30.3       36.2
  current budget (a)
(as a % of GDP)                                    1.4        1.6
Gross investment                                  71.8       74.6
Net investment                                    28.3       29.1
(as a % of GDP)                                    1.3        1.3
Total managed expenditure                        755.4      789.8
(as a % of GDP)                                   35.9       35.8
Public sector net borrowing                       -2.0       -7.1
(as a % of GDP)                                   -0.1       -0.3
Financial transactions                           -10.8      -12.4
Public sector net cash requirement                 8.8        5.3
(as a % of GDP)                                    0.4        0.2
Public sector net debt (% of GDP)                 74.9       71.7
GDP deflator at market prices                    111.4      113.7
  (2011 = 100)
Money GDP                                       2105.7     2205.4
Financial balance under                           -0.1        0.3
  Maastricht (% of GDP) (b)
Gross debt under Maastricht                       83.4       79.3
  (% of GDP) (b)

Notes: These data are constructed from seasonally adjusted national
accounts data. This results In differences between the figures here
and unadjusted fiscal year data. Data exclude the impact of financial
sector Interventions, but include flows from the Asset Purchase
Facility of the Bank of England, (a) Public sector current budget
surplus Is total current receipts less total current expenditure and
depreciation, (b) Calendar year.

Table A9. Saving and investment As a percentage of GDP

             Households          Companies      General government

        Saving    Invest-   Saving    Invest-   Saving    Invest-
                   ment                ment                ment

2009       6.6       3.9      11.3       8.0      -5.7       3.1
2010       7.9       4.3      11.4       9.1      -5.6       2.9
2011       6.0       4.5      12.8       9.3      -4.2       2.6
2012       5.6       4.5      11.6       9.6      -4.5       2.4
2013       4.4       4.7      10.9      10.3      -2.8       2.1
2014       4.1       5.0      10.7      10.6      -2.4       2.3
20/5       4.8       5.1      10.3      10.9      -1.7       2.2
20/6       4.4       5.6       9.9      11.3      -0.4       2.1
20/7       4.8       6.0       8.9      11.5       1.2       2.0
2018       5.6       6.3       8.3      11.5       2.4       2.0
2019       6.0       6.6       8.5      11.4       2.8       1.9

           Whole economy      Finance from abroad
                                    (a)
                                                      Net
        Saving    Invest-    Total    Net factor    national
                   ment                 income       saving

2009      12.1      14.9       2.8          -0.1       -1.6
2010      13.7      16.3       2.6          -1.1        0.4
2011      14.7      16.4       1.7          -1.2        1.5
2012      12.8      16.5       3.7           0.3       -0.5
2013      12.6      17.0       4.5           0.9       -0.7
2014      12.4      17.8       5.5           2.1       -0.9
20/5      13.4      18.1       4.7           1.5        0.1
20/6      13.9      19.0       5.0           1.5        0.6
20/7      14.9      19.5       4.6           1.3        1.7
2018      16.2      19.8       3.5           0.8        3.0
2019      17.2      19.9       2.7           0.3        3.9

Notes: Saving and investment data are gross of depreciation unless
otherwise stated, (a) Negative sign indicates a surplus for the UK.

Table A10. Medium and long-term projections

All figures percentage change unless otherwise stated

                                    2011    2012     2013     2014

GDP (market prices)                 1.6      0.7      1.7      2.8
Average earnings                    0.9      2.2      1.9      1.5
GDP deflator (market prices)        2.1      1.7      1.8      1.7
Consumer Prices Index               4.5      2.8      2.6      1.4
Per capita GDP                      0.8      0.0      1.0      2.1
Whole economy productivity (a)      1.3     -1.2     -0.3      0.1
Labour input (b)                    0.4      1.9      1.8      2.7
ILO unemployment rate (%)           8.1      8.0      7.6      6.2
Current account (% of GDP)         -1.7     -3.7      -4.5    -5.5
Total managed expenditure
  (% of GDP)                       43.7     43.9     41.1     40.6
Public sector net borrowing
  (% of GDP)                        7.5      8.1      5.3      5.2
Public sector net debt             70.6     74.6     78.3     80.6
  (% of GDP)
Effective exchange rate
  (2011 = 100)                    100.0    104.2    102.9     111.0
Bank Rate (%)                       0.5      0.5      0.5      0.5
3 month interest rates (%)          0.9      0.8      0.5      0.5
10 year interest rates (%)          3.1      1.8      2.4      2.5

                                   2015     2016     2017

GDP (market prices)                 2.5      2.4      2.5
Average earnings                    1.3      2.3      2.9
GDP deflator (market prices)        0.9      0.9      1.4
Consumer Prices Index              -0.1      1.0      1.9
Per capita GDP                      1.8      1.7      1.8
Whole economy productivity (a)      0.3      1.6      1.8
Labour input (b)                    2.0      0.7      0.8
ILO unemployment rate (%)           5.4      5.3      5.3
Current account (% of GDP)         -4.7     -5.0      -4.6
Total managed expenditure
  (% of GDP)                       39.9     38.7     37.2
Public sector net borrowing
  (% of GDP)                        4.4      3.0      1.3
Public sector net debt             81.4     81.5     79.8
  (% of GDP)
Effective exchange rate
  (2011 = 100)                     115.8    116.1    116.2
Bank Rate (%)                       0.5      0.8      1.3
3 month interest rates (%)          0.6      1.0      1.5
10 year interest rates (%)          1.7      2.3      2.8

                                   2018     2019    2020-24

GDP (market prices)                 2.6      2.6        2.5
Average earnings                    3.1      3.2        3.4
GDP deflator (market prices)        1.9      2.0        2.1
Consumer Prices Index               2.1      2.0        2.1
Per capita GDP                      1.9      2.0        1.9
Whole economy productivity (a)      1.8      1.9        2.1
Labour input (b)                    0.8      0.7        0.4
ILO unemployment rate (%)           5.2      5.1        5.2
Current account (% of GDP)         -3.5     -2.7       -2.0
Total managed expenditure
  (% of GDP)                       36.0     35.8       36.4
Public sector net borrowing
  (% of GDP)                        0.1     -0.3        0.2
Public sector net debt             76.9     73.7       64.5
  (% of GDP)
Effective exchange rate
  (2011 = 100)                    116.4     116.6      116.7
Bank Rate (%)                       1.8      2.2        3.3
3 month interest rates (%)          2.0      2.4        3.5
10 year interest rates (%)          3.2      3.5        4.0

Notes: (a) Per hour, (b) Total hours worked.

REFERENCES

Banerjee, R., Kearns, J. and Lombardi, M. (2015), '(Why) Is investment growth weak?', BIS Quarterly Review, March, pp. 67-82.

Barnett, A., Batten, S., Chiu, A., Franklin, J. and Sebastia-Barriel, M. (2014),'The UK productivity puzzle', Bonk of England Quarterly Bulletin, 2014 Q2, pp. 114-127.

Carney, M. (2014), Speech given at the Trades Union Congress, Liverpool.

Department for Communities and Local Government, House Building: March Quarter 2012, England, https://www.gov.uk/government/ uploads/system/uploads/attachment_data/file/6834/2145660.pdf.

Kirby, S. (2015).'The macroeconomic implications of the parties' fiscal plans', National Institute Economic Review, 231, pp. F4-11.

Kirby, S. and Meaning, J. (2014),'Exchange rate pass-through: a view from a global structural model', National Institute Economic Review, 230, pp. F59-64.

--(2015),'Oil prices and economic activity', National Institute Economic Review, 231, pp. F43-8.

ONS (2014), Pink Book.

NOTE

(1) For instance, while prices in the UK. were flat over this period, in our main trading partner, the Euro Area, prices contracted 0.1 per cent.

Simon Kirby * with Oriol Carreras **, Jack Meaning **, Rebecca Piggott ** and James Warren **

The production of this forecast is supported by the Institute's Corporate Members: Bank of England, HM Treasury, Mizuho Research Institute Ltd, Office for National Statistics, Santander (UK) pic and by the members of the NiGEM users group.

* NIESR and Centre For Macroeconomics. E-mail: s.kirby@niesr.ac.uk. ** NIESR. Thanks to Jonathan Portes for helpful comments and suggestions. Unless otherwise stated, the source of all data reported in the figures and tables is the NiGEM database and forecast baseline. The UK forecast was completed on 28 April 2015.

Table 1. Summary of the forecast

Percentage change

                               2011    2012    2013    2014    2015

GDP                             1.6     0.7     1.7     2.8     2.5
Per capita GDP                  0.8     0.0     1.0     2.1     1.8
CPI Inflation                   4.5     2.8     2.6     1.4    -0.1
RPIX Inflation                  5.3     3.2     3.1     2.4     0.9
RPDI                           -1.9     1.6     0.1     0.6     4.7
Unemployment, %                 8.1     8.0     7.6     6.2     5.4
Bank Rate, %                    0.5     0.5     0.5     0.5     0.5
Long Rates, %                   3.1     1.8     2.4     2.5     1.7
Effective exchange rate        -0.1     4.2    -1.2     7.9     4.3
Current account as % of GDP    -1.7    -3.7    -4.5    -5.5    -4.7
PSNB as % of GDP (a)            7.5     7.3     5.5     4.9     4.3
PSND as % of GDP (a)           72.3    77.4    79.8    81.6    81.6

                               2016    2017    2018    2019

GDP                             2.4     2.5     2.6     2.6
Per capita GDP                  1.7     1.8     1.9     2.0
CPI Inflation                   1.0     1.9     2.1     2.0
RPIX Inflation                  1.7     2.4     2.6     2.5
RPDI                            2.2     2.3     2.8     2.8
Unemployment, %                 5.3     5.3     5.2     5.1
Bank Rate, %                    0.8     1.3     1.8     2.2
Long Rates, %                   2.3     2.8     3.2     3.5
Effective exchange rate         0.2     0.1     0.2     0.2
Current account as % of GDP    -5.0    -4.6    -3.5    -2.7
PSNB as % of GDP (a)            2.5     1.0    -0.1    -0.3
PSND as % of GDP (a)           80.8    78.1    74.9    71.7

Notes: RPDI is real personal disposable income. PSNB is public sector
net borrowing. PSND is public sector net debt, (a) Fiscal year,
excludes the impact of financial sector interventions, but includes
the flows from the Asset Purchase Facility of the Bank of England.