The UK economy.

Pain, Nigel ; Riley, Rebecca ; Weale, Martin 等

The production of this forecast is supported by the Institute's Corporate Members: Bank of England, Barclays Bank plc, Dixons plc, Ernst and Young plc, GlaxoSmithKline, INVESCO Europe Ltd, Marks and Spencer plc, Morgan Stanley Dean Witter (Europe) Ltd, Morley Fund Management, The National Grid Company plc, Nomura Research Institute Europe Ltd, Pearson plc, Rio Tinto plc, Standard Chartered Bank, UBS Warburg, Unilever plc, Watson Wyatt and Willis Group plc.

Section I. Recent developments and summary of the forecast

The fourth quarter of last year saw a sharp fall in manufacturing output and thus in industrial production. In the three months to November manufacturing output was 1.9 per cent lower than it had been in the previous three month period and industrial production, which includes mining, quarrying and fuel extraction and electricity, gas and water as well as manufacturing, was lower by 2 per cent. Since industrial production accounts for 27 per cent of the economy, these figures on their own account for a fall in output of the whole economy. This decline will have also affected those service industries that sell to the industrial sector. Despite this, GDP is estimated to have increased by 0.2 per cent in the fourth quarter of last year. It is likely that much of the support for this came from public sector spending.

The growth rate of 2.4 per cent per annum shown for the year is just below the average growth rate for 1960-2000 (2.5 per cent per annum). However, early official estimates of GDP growth appear to be subject to substantial biases. The average revision between the first Blue Book estimate and the current estimate of annual growth over the period 1980-2000 is 0.4 per cent per annum. A comparison of the first annual estimates with the first Blue Book estimates suggests a further modest upward revision. Thus it is quite possible that the final estimate of economic growth in 2001 will be over 2.5 per cent and thus above the long-term average.

The slow growth in the fourth quarter of the year has come as something of a surprise. It is probably a consequence of the New York air raid at a time when the world economy was already slowing, although there is no obvious reason why the United Kingdom should have been affected as much as it was. Nevertheless, data revisions mean that growth for earlier quarters has been faster than the data initially suggested, with the consequence that, in 2001 as a whole, output has grown almost exactly as we forecast it in April and marginally faster than we anticipated in July and October. Our model had difficulty in accommodating the early low output estimates for the first part of this year; the data revisions mean in essence that the growth we had put in the second part of the year actually occurred in the first half, giving a reasonably correct overall picture.

The contrast between output indicators showing stagnation and the buoyancy in retail sales has been striking. The volume of sales in the period October to December was 1.3 per cent higher than it had been in the previous three months. This rate of increase is slightly lower than the growth rate of 1.5 per cent in the third quarter but it still suggests a very buoyant picture. Many shops reported high levels of spending over the Christmas period, although the good results were not universal. Nevertheless there appeared to be a discrepancy between the picture reported by stores and the retail sales data. This does not imply that the data are wrong. In large part the issue may arise with seasonal adjustment; there is no clear right way of doing this and seasonal patterns do change from time to time, disrupting adjusted data. In turn this means that there is bound to be an error margin associated with seasonally adjusted data, and the Office for National Statistics could undoubted avoid some of the criticism it h as received by making estimates of error margins available to data users.

Table 1 shows the contribution made by each component of demand to annual output growth. The first column of data shows our estimate of what actually happened in 2001, while the second column shows what would have happened if the pattern of demand had been neutral, i.e. if all the components of demand had grown at the same rate as GDP. Thus, relative to the neutral case, household and government consumption contributed substantially more, while exports and gross fixed capital formation contributed substantially less. The weakness of exports may be attributed to the fact that other major economies showed slower growth than Britain (exports grew faster than world trade), while the excess growth of imports arises from a number of factors. First of all, consumption growth tends to be import-intensive. Secondly, there is an inherent tendency for import penetration to rise as income rises. Thirdly, there may still be an element of adjustment to the high level of sterling on the import side, although we have argued that the export side has adjusted fully.

The buoyant behaviour of consumption merits some comment. The early figures suggest that this was driven more by strong growth in disposable income than by a borrowing boom. The savings ratio was probably higher in 2001 than in 2000 although the quarterly pattern suggests it was lower in the second half of the year than in the first half. In 2002 we expect household income to grow more slowly. Under the influence of cheap credit, household spending is expected to rise slightly faster than income. However, because the savings ratio also takes account of net saving by pension funds, which is expected to rise slightly, it is likely to decline only very slightly.

We see the slow growth of the fourth quarter of last year as a result of the confluence of the New York air raid and the slowdown in the world economy and do not expect it to persist into the current year. Domestically, this is because the factors which led to buoyant growth last year are still in place. In particular the public sector, taking consumption and investment together, is expected to contribute 1.2 per cent to overall growth this year, after 0.8 per cent last year, compensating for slower growth in household consumption. There is now beginning to be evidence of reviving demand internationally; this is likely to improve sentiment even though we do not expect demand for UK exports to rise rapidly in the immediate future. However, the overall atmosphere is one in which consumers are unlikely to take fright, raising saving substantially and depressing consumption. This year growth is forecast to be 2.1 per cent, a figure which, if delivered, will probably leave the United Kingdom as the fastest growing of the G-7 economies for the second successive year.

Monetary policy and inflation prospects

The annual rate of RPIX inflation is forecast to average 1.5 per cent this year. If it falls below this the Governor of the Bank of England will have to write to the Chancellor of the Exchequer explaining how monetary policy will be used to raise the inflation rate (chart 1). Our forecast suggests this is possible in the middle of this year, and it would not be surprising if several letters were needed. Strong disinflationary pressure in the world economy remains evident. Wholesale prices in manufacturing fell by 1 per cent year-on-year in he fourth quarter reflecting weak commodity prices. The year-on-year fall in input prices was 8 1/4 per cent. Falling wholesale prices are helping to hold down consumer price inflation.

Evidence that the slowdown is helping to restrain wage costs is emerging in recent wage data. This is apparent in both the headline rate of average earnings growth, which slowed from 4.5 per cent in the three months to August to 4.2 per cent in the three months to November, and in pay settlements data to December of last year. Indicators of earnings are likely to underestimate the underlying increase in wage moderation due to revisions to the National Minimum Wage in October. The increase in the minimum rate of pay for adults from [pounds sterling]3.70 to [pounds sterling]4.10 per hour is expected to raise the total wage bill and hence, for given employment, average earnings, by 0.3 per cent.

We do not believe these prospects for inflation warrant further interest rate reductions and we have not assumed further interest rate cuts in our forecast (table 2). Inflation is expected to bottom out in the middle of the year. To raise inflation in the near term it is likely that interest rate reductions would have to be significant, which would jeopardise the inflation target next year. The benefit of further rate reductions is questionable following the aggressive loosening that took place last year. Further rate reductions at this stage are more likely to exacerbate current imbalances in the economy, rather than restrain inflation. Minutes of the January meeting of the Monetary Policy Committee indicate exactly this concern. The question remains as to whether the half point reduction in interest rates in November was fully necessary; past experience has shown the ability of the Monetary Policy Committee to overshoot. Markets do not expect further interest rate reductions this year, but the timing of the expected rise in interest rates has been delayed by poor economic news for the fourth quarter of last year. In line with market expectations we expect interest rates to rise by early summer and expect short-term interest rates to reach 5 per cent by the end of the year.

Fiscal policy

Our forecast for GDP growth this year is a little below trend at 2.1 per cent. The performance of the UK economy is thus expected to be strong in relation to other G7 economies this year. This outcome depends to a large extent on the Government delivering its spending plans. We have assumed government consumption and investment volumes grow this year and next as forecast in the Pre-Budget Report (PBR). This implies very rapid growth in public spending in the second half of the current fiscal year. The timeliness of the fiscal loosening is obvious and we expect more than half of GDP growth this year to be accounted for by government consumption and investment alone. A risk to the relatively benign economic outlook is that the government does not actually deliver its expenditure plans.

Ambitious spending plans at a time when growth in tax receipts is likely to be waning has raised the question whether taxes need rise to meet the requirement that, averaged over the cycle, the current budget should remain in surplus. The Government has set out its projections for the fiscal balance to 2005 in the PBR. The Government is expecting a smaller surplus in all fiscal years than had been projected in the Budget last year. The additional debt accumulated comes to [pounds sterling]25 1/2 billion. Twenty per cent of the reduction in the surplus for the fiscal years 2002/3-2004/5 is due to the announcement of a number of additional tax reductions and expenditure increases since the Budget worth [pounds sterling]1/2 billion next fiscal year and rising to [pounds sterling]2.9 billion by 2004/5. The remaining deterioration in the surplus is largely due to the worsening economic outlook since March 2001.

Table 3 shows our forecast of the public sector financial balance and table 4 compares it to the projection in the Pre-Budget Report. Our forecast is based on assumptions different from those made by the Government. The Government believes like many others that the trend rate of growth is 2 1/2 per cent, but projects the fiscal balance on the prudent assumption of 21/4 per cent trend growth. On the other hand, the Government assumes that output is currently cyclically depressed and thus builds in a cyclical recovery in tax revenues in 2003/4. Our forecast, by contrast, is based on the growth rates which emerge from our model.

Spending assumptions for social benefits and debt interest are model-driven. Expenditure on goods and services is assumed to grow in line with GDP. This results in overall expenditure over [pounds sterling]8 billion higher than the PreBudget Report shows for 2005/6. We expect net investment to remain slightly below the government's projections, but to reach the Government's target for net investment of 1.8 per cent of nominal GDP in the longer term.

The resulting forecast of the public finances is more pessimistic than the Government's. On the basis of our assumptions we expect the current account surplus to remain broadly in balance over the next four years, rather than in surplus. Public sector net borrowing is expected to rise to just under 2 per cent of GDP.

Net investment of a similar order of magnitude increases the likelihood that the Government will be borrowing to finance current expenditure (chart 2). We emphasise that our forecast does nor suggest the need to raise taxes. There is a cumulated current account surplus of well over [pound sterling]50 billion since the start of the current cycle in 1999. A deficit cumulating to this could be run over the rest of the cycle without the fiscal rules being breached.

These calculations take no explicit account of plans for substantial increases in health spending, although the higher level of money GDP we project would allow current expenditure to be higher than in Pre-Budget Report. Wanless (2001) reported that in 1998 health spending in the UK amounted to 6.8 per cent of GDP while the income-weighted average for the EU was 8.4 per cent. Since the UK comprises 15 per cent of the EU, bringing UK spending into line with the EU average will itself raise the existing EU average to 8.7 per cent of GDP even if spending in the other countries remains a constant share of income.

In 1998/9 publicly financed health spending as shown in the 2000 Budget amounted to 4.4 per cent of GDP. In 2003/4 this is projected to rise to 5.4 per cent of GDP under current spending plans. Thus, of the 1.9 percentage point increase needed to achieve EU parity, 1 percentage point should have been achieved by then. A further increase of about [pound sterling]10 billion is needed to meet the EU average. However the component of health spending not covered by the Departmental budget may also have risen since 1998/9, reducing the increment needed. Furthermore, a part of the incremental spending will presumably be capital spending outside the current budget; the increment to current spending needed is therefore probably similar to the budget surplus projected in the PBR for 2005/6.

Thus, if the future turns out as we project, tax increases are not obviously needed to bring UK health spending in line with the 1998 EU average. Our own estimates show room for higher spending of a magnitude almost equal to the cost of the Wanless proposals. But if rapid growth of spending in other areas continues, for example to pay for the child tax credit, then the need for eventual tax increases becomes more obvious. The cumulated current account surplus to date suggests that the need for such tax increases is not urgent when the issue is looked at solely on the basis of the rule that the current account should at least balance over the cycle. On the other hand the macroeconomic balance would be affected by substantial extra public spending. Concerns about this may lead the Treasury to announce tax increases to pay or extra spending in the forthcoming budget.

Summary of the forecast

The experiences of the company and the household sectors were considerably different in the third quarter last year. Export volumes and business investment exerted a drag on growth. Growth was led by household consumption expenditure, which remained buoyant. Early indicators suggest that growth slowed to 0.2 per cent in the fourth quarter of last year. We see this as an adverse consequence of the events of 11 September coming on top of the weakening of the world economy which receded these events.

Looking ahead, we expect the quarterly growth rate to pick up. On the other hand, the past quarterly profile means that we see the annual rate of growth slowing to 2.1 per cent this year. Growth in consumption expenditure is expected to moderate gradually as households rebuild net wealth in the wake of the equity price collapse last year. Government demand alone is expected to increase GDP by 1.2 per cent in 2002. Following the expected rebound in world trade growth, growth in exports and business investment are expected to pick up in the second quarter of 2002, gathering moment m into 2003 as growth in both household and government consumption expenditure begins to moderate. We expect GDP growth of 2.6 per cent in 2003.

Inflationary pressure remains low this year. Our forecast shows the inflation rate would drop as low as 1.3 per cent in the third quarter of the year, before rising to its target in 2003. By then import prices are likely to become a source of inflationary pressure and the full impact of recent aggressive monetary loosening will have worked through to prices. We do not expect further reductions in interest rates unless the world economy continues to deteriorate. We expect rising house prices to bolster household sector net wealth, although the housing market is likely to slow somewhat this year tempered by weaker employment growth and economic uncertainty. We do not foresee a sharp slowdown in he housing market. Cumulative reductions in interest rates have resulted in historically low rates of mortgage interest and incomes are not expected to slow dramatically.

Manufacturing investment should start to recover in the second half of this year following the recovery of non- manufacturing investment in the second quarter of the year. While world trade is expected to grow throughout 2002, over-capacity in the manufacturing sector and uncertainty are likely to restrain investment in the first half of the year and a more immediate recovery of manufacturing investment is unlikely. Growth in exports is expected to pick up significantly in the second quarter of this year as the revival of world trade consolidates. Imports are expected to grow more quickly, serving to widen the trade deficit.

The claimant unemployment rate is likely to rise to approximately 3 3/4 per cent of the workforce next year as the population of working age and the civilian workforce grow more rapidly than employment. Unemployment on the ILO definition is expected to rise to approximately 53/4 per cent of the workforce. Recent wage data suggest that the slowdown is affecting the labour market. Growth in average earnings should decrease to 4.2 per cent this year from an estimated rate of 5.2 per cent last year.

One of the risks to the economic outlook remains the possibility of a more drastic correction to consumer expenditure than we currently anticipate. With growth dependent on public sector expenditure, the risk that spending plans are not delivered presents a second downside risk to the forecast. A failure of world trade to resume would also deliver lower growth than we are expecting.

We do not see the need for tax rises in the March Budget. However, tax increases would deliver a better macroeconomic balance, reducing the need for interest rates to be raised.

REFERENCE

Wanless, D. (2001), Securing our Future Health: Taking a Long-term View, London, HM Treasury, http://www.hm-treasury.gov.uk/Consultations_and_ Legislation/wanless/consult_wanless_index.cfm?

[Graph omitted]

[Graph omitted]

Table 1.

Contributions to GDP growth by component of demand in 2001, per cent

 Actual Neutral

Household consumption 2.4 1.6
Government consumption 0.6 0.4
Gross fixed capital formation 0.3 0.5
Changes in inventories -0.1 0.0
Exports 0.4 0.8
Less imports -1.2 -1.0
Residual 0.0 0.0
Equals GDP growth 2.4 2.4

Rounding errors mean that components do not always sum to the totals
Table 2

Exchange rates and interest rates

 UK exchange rates FT
 All-share
 Effective Dollar Euro index

1998 103.93 1.66 1.49 2626.2
1999 103.73 1.62 1.52 2918.2
2000 107.52 1.52 1.64 3045.8
2001 105.76 1.44 1.61 2679.0
2002 105.48 1.43 1.60 2589.8
2003 104.09 1.40 1.58 2727.1

2001 Q1 104.50 1.46 1.58 2898.3
2001 Q2 106.40 1.42 1.63 2799.9
2001 Q3 106.10 1.44 1.62 2543.4
2001 Q4 106.04 1.44 1.61 2474.5
2002 Q1 105.93 1.44 1.61 2539.8
2002 Q2 105.65 1.43 1.60 2572.9
2002 Q3 105.35 1.43 1.60 2606.3
2002 Q4 104.99 1.42 1.60 2640.2
2003 Q1 104.58 1.41 1.59 2674.5
2003 Q2 104.23 1.41 1.59 2709.3
2003 Q3 103.92 1.40 1.58 2744.5
2003 Q4 103.64 1.40 1.58 2780.2

Percentage changes
1998/97 3.4 1.2 2.7 17.5
1999/98 -0.2 -2.3 2.1 11.1
2000/99 3.7 -6.3 8.2 4.4
2001/00 -1.6 -5.0 -2.0 -12.0
2002/01 -0.3 -0.7 -0.5 -3.3
2003/02 -1.3 -1.8 -1.1 5.3
2001Q4/00Q4 -1.5 -0.3 -3.2 -18.0
2002Q4/01Q4 -1.0 -1.6 -1.0 6.7
2003Q4/02Q4 -1.3 -1.5 -1.1 5.3

 Interest rates

 3-month rates Mortgages interest 10-year gilts

1998 7.33 7.71 5.52
1999 5.44 6.41 5.08
2000 6.10 6.80 5.31
2001 4.95 5.87 4.99
2002 4.45 5.34 5.01
2003 5.00 5.76 5.05

2001 Q1 5.63 6.44 4.81
2001 Q2 5.23 6.07 5.09
2001 Q3 4.92 5.83 5.04
2001 Q4 4.00 5.13 5.00
2002 Q1 4.03 5.04 5.00
2002 Q2 4.19 5.15 5.00
2002 Q3 4.60 5.43 5.00
2002 Q4 5.00 5.74 5.05
2003 Q1 5.00 5.77 5.05
2003 Q2 5.00 5.76 5.05
2003 Q3 5.00 5.76 5.05
2003 Q4 5.00 5.75 5.05

Percentage changes
1998/97
1999/98
2000/99
2001/00
2002/01
2003/02
2001Q4/00Q4
2002Q4/01Q4
2003Q4/02Q4

 Interest
 rates

 World (a)

1998 3.91
1999 3.22
2000 4.45
2001 3.86
2002 3.00
2003 3.70

2001 Q1 4.50
2001 Q2 4.16
2001 Q3 3.80
2001 Q4 2.96
2002 Q1 2.81
2002 Q2 2.88
2002 Q3 3.05
2002 Q4 3.26
2003 Q1 3.47
2003 Q2 3.64
2003 Q3 3.76
2003 Q4 3.93

Percentage changes
1998/97
1999/98
2000/99
2001/00
2002/01
2003/02
2001Q4/00Q4
2002Q4/01Q4
2003Q4/02Q4

(a)Weighted average of 3-month interbank rates in other OECD economies.
Table 3.

Public sector financial balance and borrowing requirement

[pounds sterling] billion, fiscal years
 1999-00 2000-1 2001-2

Current expenditure: Goods and services 168.1 178.3 191.1
 Net social benefits paid 111.2 116.3 122.2
 Debt interest 25.3 26.4 22.3
 Subsidies 4.6 4.4 6.9
 Other current expenditure 17.7 19.8 22.5
 Total 326.9 345.2 365.0
Gross investment 16.8 18.7 22.2
Net investment 4.6 6.7 11.7
(as a % of GDP) 0.5 0.7 1.2
Total managed expenditure 344.4 364.6 389.7
(as a % of GDP) 37.7 38.1 39.0
Current receipts: Taxes on income 149.3 160.2 163.7
 Taxes on expenditure 129.9 134.5 140.3
 Social security contributions 68.0 72.2 75.8
 Gross operating surplus 7.8 7.7 7.8
 Other current receipts 4.9 5.4 3.5
 Total current receipts 359.8 380.0 391.1
 (as a % of GDP) 39.4 39.7 39.1
Public sector current balance 20.1 22.1 13.1
Public sector net borrowing -15.5 -15.2 -1.4
(as a % of GDP) -1.7 -1.6 -0.1

Financial transactions -6.9 22.0 -10.6
Public sector net cash requirement -8.6 -37.2 10.3
(as a % of GDP) -0.9 -3.9 1.0
Public sector net debt (% of GDP) 36.7 31.4 31.4

GDP deflator at market prices (1995=100) 112.8 114.8 117.5
Money GDP 912.5 956.6 1000.1

Financial balance under Maastricht 1.1 1.8 1.1
(calendar year, % of GDP)
Gross debt under Maastricht (calendar year, 45.7 42.8 39.4
% of GDP)

[pounds sterling] billion, fiscal years
 2002-3 2003-4 2004-5

Current expenditure: Goods and services 206.8 217.0 229.4
 Net social benefits paid 131.8 141.7 152.1
 Debt interest 21.0 20.0 20.4
 Subsidies 6.9 7.3 7.8
 Other current expenditure 23.0 23.8 24.8
 Total 389.5 409.8 434.6
Gross investment 26.5 30.9 35.4
Net investment 12.9 16.6 20.3
(as a % of GDP) 1.2 1.5 1.7
Total managed expenditure 416.0 440.7 470.0
(as a % of GDP) 39.7 39.8 40.1
Current receipts: Taxes on income 166.2 174.2 183.0
 Taxes on expenditure 147.1 154.4 162.2
 Social security contributions 79.2 83.9 88.7
 Gross operating surplus 7.9 8.0 8.1
 Other current receipts 5.0 5.9 6.2
 Total current receipts 405.4 426.4 448.1
 (as a % of GDP) 38.7 38.5 38.2
Public sector current balance 2.4 2.2 -1.6
Public sector net borrowing 10.6 14.4 21.9
(as a % of GDP) 1.0 1.3 1.9

Financial transactions 0.2 0.4 0.7
Public sector net cash requirement 10.4 14.0 21.2
(as a % of GDP) 1.0 1.3 1.8
Public sector net debt (% of GDP) 30.6 30.1 30.3

GDP deflator at market prices (1995=100) 120.2 124.2 127.9
Money GDP 1046.6 1108.8 1172.6

Financial balance under Maastricht -1.2 -1.1 -1.7
(calendar year, % of GDP)
Gross debt under Maastricht (calendar year, 38.9 37.7 37.1
% of GDP)

[pounds sterling] billion, fiscal years
 2005-6

Current expenditure: Goods and services 241.1
 Net social benefits paid 162.1
 Debt interest 21.3
 Subsidies 8.2
 Other current expenditure 25.8
 Total 458.6
Gross investment 38.5
Net investment 22.5
(as a % of GDP) 1.8
Total managed expenditure 497.0
(as a % of GDP) 40.2
Current receipts: Taxes on income 197.6
 Taxes on expenditure 169.8
 Social security contributions 93.5
 Gross operating surplus 8.2
 Other current receipts 6.5
 Total current receipts 475.5
 (as a % of GDP) 38.5
Public sector current balance 1.0
Public sector net borrowing 21.5
(as a % of GDP) 1.7

Financial transactions 0.9
Public sector net cash requirement 20.6
(as a % of GDP) 1.7
Public sector net debt (% of GDP) 30.4

GDP deflator at market prices (1995=100) 131.4
Money GDP 1235.8

Financial balance under Maastricht -1.7
(calendar year, % of GDP)
Gross debt under Maastricht (calendar year, 36.7
% of GDP)

Note:

Public sector current balance is total current receipts less total
current expenditure and depreciation.

(a) General government.
Table 4.

Forecasts of the public sector financial balance compared

[pounds sterling] billion, fiscal years

 2001-2 2002-3 2003-4 2004-5

Pre-Budget Report
Current expenditure 367.6 389 411 430
Net investment 12.9 15 19 20
 (as a % of GDP) 1.3 1.4 1.7 1.8
Current receipts 391 406 430 452
 (as a % of GDP) 39.2 38.8 39.1 39.3
Public sector current balance (a) 10 3 4 7
Public sector net borrowing 2.5 12 15 13
 (as a % of GDP) 0.3 1.1 1.3 1.2
Money GDP 998 1046 1099 1150

NIESR forecast
Current expenditure 365 389.5 409.8 434.6
Net investment 11.7 12.9 16.6 20.3
 (as a % of GDP) 1.2 1.2 1.5 1.7
Current receipts 391.1 405.4 426.4 448.1
 (as a % of GDP) 39.1 38.7 38.5 38.2
Public sector current balance(a) 13.1 2.4 2.2 -1.6
Public sector net borrowing -1.4 10.6 14.4 21.9
 (as a % of GDP) -0.1 1 1.3 1.9
Money GDP 1000.1 1046.6 1108.8 1172.6

 2005-6

Pre-Budget Report
Current expenditure 450
Net investment 22
 (as a % of GDP) 1.8
Current receipts 474
 (as a % of GDP) 39.4
Public sector current balance (a) 8
Public sector net borrowing 13
 (as a % of GDP) 1.1
Money GDP 1205

NIESR forecast
Current expenditure 458.6
Net investment 22.5
 (as a % of GDP) 1.8
Current receipts 475.5
 (as a % of GDP) 38.5
Public sector current balance(a) 1
Public sector net borrowing 21.5
 (as a % of GDP) 1.7
Money GDP 1235.8

Note: (a)Current receipts less current expenditure less depreciation.

Components of expenditure (table 5)

GDP growth in the third quarter last year turned out much as we expected in October at 0.5 per cent. But the divergent experiences of the company and the household sector, visible in the first half of last year, proved to be more pronounced than anticipated. Export volumes and business investment reduced GDP by 1.2 and 0.2 per cent respectively in the third quarter of 2001, while household consumption remained buoyant, raising GDP by 0.7 per cent.

Section II. The forecast in detail

In the fourth quarter GDP rose by 0.2 per cent. This is the worst performance since the first quarter of 1999 when output rose by 0.1 per cent on the previous q arter (chart 3). It is slightly higher than we had anticip ted when preparing the forecast but the discrepancy oes not affect the annual growth rates. The monthly pat em of our output estimates suggest that the econ my suffered an adverse shock following the 11 September attack in New York separate from the downturn in the world economy that became apparent be re September.

Growth in household consumption is expected to h ye moderated slightly from over 1 per cent in the third quarter to around 3/4 per cent in the fourth quarter. We have assumed that government consumption rose sharply by 1 1/2 per cent in the fourth quarter to meet the 3 per cent annual growth forecast for 2001 announced in the Pre-Budget Report (PBR). Thus government consumption is assumed to contribute over a 1/4 percentage point to GDP growth in the fourth quarter. We expect fixed investment to have risen by around 1 per cent in the fourth quarter. Buoyant public sector investment disguises a fall in business investment of over 1 per cent, as companies are likely to have delayed investment plans in the uncertain economic environment in the latter part of 2001. De-stocking is expected to reduce growth in the fourth quarter of 2001 by approximately 0.1 percentage points. More than half of this reduction is accounted for by National Statistics alignment adjustments included in stockbuilding.

The first ONS estimates show GDP growth of 2.4 per cent per annum in 2001. This is close to our October forecast of 2.3 per cent growth, despite the downward revision to our growth forecast for the last quarter of the year because of further revisions to the national accounts data for earlier periods. The data now suggest that GDP grew by 0.7 and 0.5 per cent in the first and second quarters of 2001 respectively, instead of 0.6 and 0.4 per cent as previously believed.

We expect GDP growth to slow to 2.1 per cent per annum this year. Household consumption expenditure is expected to rise less rapidly as household income growth slows. Government consumption alone is expected to increase GDP by 0.9 per cent in 2002 and growth in public sector investment adds a further 0.3 per cent. We have assumed that the Government delivers its plans for final expenditure as set out in the PBR. The semi-annual spending plans published in the PBR suggest that growth in government consumption expenditure will be strongest in the first half of the year. The possibility that consumers curb spending more abruptly than we currently expect and the possibility that the government does not deliver its spending plans poses downside risks to our forecast. The likelihood of the first outcome is not great given the sharp reduction in interest rates in the second half of 2001. Following the recent levelling off of the decline in world trade growth, growth in exports and business investment are expected to pick up in the second quarter of 2002, gathering momentum into 2003 as growth in both household and government consumption expenditure begins to moderate. The growth rate of GDP in 2003 is expected to be 2.6 per cent.

Household sector (table 6)

Strong growth in consumer spending continued into the second half of last year. Consumption of transport, food and drink, clothing and footwear was particularly buoyant in the third quarter. Consumption of durable goods remained strong, rising by over 2 per cent, although this growth rate was slower than in the first half of the year. Retail sales volumes for the fourth quarter of last year rose by 1.3 per cent on the previous quarter. Although strong this does represent a slight weakening compared to the rest of 2001. Retail sales were weak in October and fell in December according to the first estimates available in January. It is possible that the developments signal the beginning of a slowdown in consumption, but it is easy to read too much into these figures. We expect that healthy but more modest growth in consumption towards the end of last year will continue into 2002 and 2003 as growth in real disposable income slows. Growth in real disposable income is expected to fall from over 4 1/2 per cent last year to 3 per cent this year and next due to weak employment growth and increased wage restraint.

By the end of last year household sector net worth is estimated to have fallen 8 1/2 per cent since the end of 2000. This is more than due to an expected reduction in household sector financial assets of almost 23 per cent as a consequence of the collapse of the equity price bubble. Housing wealth rose by over 9 per cent over the same period serving to moderate the impact of financial market turbulence on total household net worth. We expect housing wealth to continue bolstering household sector net worth, although the housing market is likely to slow somewhat this year tempered by weaker employment growth and economic uncertainty. House price inflation is expected to be more subdued than in recent years, at around 7 per cent in 2002, despite the revival in house price inflation towards the end of last year recorded by both the Nationwide and the Halifax. We do not expect a sharp slowdown in the housing market. Cumulative reductions in interest rates have resulted in historically low rates of mortgage interes t and incomes are not expected to slow dramatically.

One of the risks to the economic outlook remains the possibility of a more drastic correction to consumer expenditure than we currently anticipate. The savings ratio declined throughout the latter half of the 1990s (chart 4) and has stabilised in the last three years at levels only briefly encountered before the recession in the late 1980s. We expect consumers gradually to moderate consumption, but we do not expect the savings rate to return to the levels observed in the first half of the 1990s. The savings ratio is expected to rise to around 5 1/2 per cent in 2003.

Investment (table 7)

Private sector investment demand was weak in the third quarter of 2001 in stark contrast to household sector consumption demand. Business investment fell by 1.6 per cent on the previous quarter reflecting a standstill in non-manufacturing investment and a reduction of over 10 per cent in manufacturing investment. The sharp reduction in manufacturing investment follows the continual contraction of manufacturing output throughout most of last year. The strongest reductions in investment were in engineering and vehicles industries, where investment demand in the third quarter of 2001 fell by 27 1/2 per cent on the previous quarter and by 31 per cent year-on-year. Within manufacturing, the engineering industries have suffered most severely from the collapse in technology stocks and the contraction of world trade.

The investment climate towards the end of last year was generally poor in the company sector. The corporate profit share rose by almost 1 per cent of GDP in the third quarter of 2001, but this was entirely accounted for by erratic growth in profits for private financial corporations. Gross operating surplus fell by half a per cent in the third quarter for private non-financial corporations. Net rates of return in the manufacturing sector were at their lowest levels since the beginning of 1992 and business confidence was low. The CBI Industrial Trends Survey from December was the most pessimistic in terms of manufacturers' expectations for output since October 1998. We expect a recovery of manufacturing investment in the second half of this year following the recovery of non-manufacturing investment in the second quarter of the year (chart 5). While world trade is expected to grow throughout 2002, over-capacity in the manufacturing sector and uncertainty are likely to restrain investment in the first half of t he year and a more immediate recovery of manufacturing investment is unlikely.

Despite the gloomy prospects for business investment towards the end of last year, for manufacturing in particular, we estimate that total fixed investment increased in the fourth quarter of 2001 due to strong government investment. We have assumed that government investment rose by 17 1/2 per cent in the fourth quarter of 2001. This is less than is required to meet the Treasury forecast of annual growth in government investment for 2001 published in the PBR. We expect the remainder will have been met by increases in capital grants which are not included in the national accounts measure of government investment, and which have increased sharply compared to 2000. Thus government investment is assumed to have added around 1/4 per cent to GDP in the fourth quarter. In line with the investment plans in the PBR we expect strong government investment in 2002, helping to counter the slump in private sector investment.

Balance of payments (table 8)

Compared with October we have made only slight downward revisions to our forecast for export growth this year and next. Cross-country patterns in interest rate differentials imply a slower depreciation of the effective exchange rate and world trade weighted by UK exports is still expected to rise by less than 4 per cent this year. It seems that growth in world trade resumed towards the end of last year. Trade data to December 2001 show exports of goods to non-EU countries rising by 1.7 per cent in the fourth quarter of last year. Imports remained unchanged, reducing the trade deficit with non-EU countries. The balance improved in relation to the North American countries as well as Hong Kong and Japan. Exports of goods to EU countries decreased in both October and November and it is likely that the trade deficits with these countries have widened in the last months of 2001, particularly with the German economy. In total we estimate a modest rise of around half a per cent in export volumes of goods in the fourt h quarter last year. Growth in exports is expected to pick up significantly in the second quarter of this year as the revival of world trade consolidates. However, given strong domestic demand, imports are expected to grow more quickly serving to widen the trade deficit.

We expect the current account deficit to rise from 1 1/2 per cent of GDP last year to around 2 and 3 per cent of GDP this year and next. The increase in the deficit next year comes about not by a significant deterioration in the goods balance, but by a reduction in the surplus on the invisibles balance, reflecting in part the lower return on foreign assets. The trade and current account deficit in themselves do not pose a threat to the stability of the economy and net external debt, at around 10 per cent of GDP at present, cannot be regarded as high.

The share of UK exports in world trade appears to be stabilising (chart 6) and suggests that the economy has largely adapted to recent levels of the exchange rate. Current problems in manufacturing arise primarily from the contraction of world trade rather than from the current rate of exchange. However, margins on export sales are very low and would be supported by a lower exchange rate. Import growth slowed considerably last year despite the buoyancy of consumer spending although, as we noted in Section 1, the share of imports in final demand did increase further.

We assume that sterling follows a path which satisfies the uncovered interest parity condition. This implies a modest depreciation from current levels.

Output and employment (tables 9 and 10)

The divergence between the traded and the non-traded sectors of the economy remained visible in the sectoral pattern of output growth in the second half of last year. Manufacturing output contracted by a further 1.9 per cent in the three months to November 2001 as compared to the previous three months. We expect manufacturing growth to pick up in spring this year as the expected revival in world trade consolidates. However, we do not expect the losses suffered last year to be made up in the short term. A weak recovery means that manufacturing output is not expected to return to the levels of 2000 before 2004.

Production data suggest that the oil sector contracted significantly in the last quarter of 2001. This pattern of closing older fields towards the end of the year is not unprecedented and we expect oil production to rise early next year.

In contrast to the traded sector, output in distribution industries expanded by 1.3 per cent in the third quarter following strong growth in domestic consumption. Within this sector, hotels and restaurants, retailing and motor trades all expanded, while wholesale trade contracted. The index of distribution for October suggests that strong growth continued into the last quarter of the year, although it is difficult to draw conclusions from one month of data. Output in business services fell by approximately 1 per cent in the third quarter following strong growth in the first half of the year. We expect strong but declining growth in services this year as private consumption slows. Public sector output is expected to increase rapidly this year in line with the rise in government spending and investment.

Productivity growth slowed markedly last year, particularly in manufacturing, reflecting the slowdown in the economy. The labour market has thus remained somewhat insulated from recent developments and this is unlikely to continue, evidenced by the rise in the claimant count towards the end of last year. We expect employment growth to slow further next year. This does imply a modest rise in unemployment. However, we do not expect unemployment to rise significantly or to return to the levels of the early 1990s, following structural improvements in the labour market as well as gain in macroeconomic stability in recent years. We expect he claimant rate to rise to approximately 3 3/4 per cent of he workforce next year as the population of working age and the civilian workforce grow more rapidly than employment. Unemployment on the ILO definition is expected to rise to approximately 53/4 per cent of the workforce. Productivity growth is likely to pick up as the manufacturing sector pulls out of recession and emplo yment growth is subdued. Indeed it is possible that manufacturing productivity growth will be stronger than we expect if the recession has had the effect of clearing out inefficient production.

Prices and wages (table II)

There are now more clear signs in the wage data that the slowdown is affecting the labour market. Provisional data suggest that the headline rate of average earnings growth slowed from 4.5 per cent in the three months to August to 4.2 per cent in the three months to November. The deceleration is concentrated in the manufacturing sector where the headline rate fell from 4.8 to 3.6 per cent over the same period. Public sector pay growth moderated slightly from 5.7 to 5.4 per cent, but remains high. We expect public sector pay to continue increasing more quickly than private sector pay this year as the public sector needs to attract extra labour for the Government to meet its spending plans.

Pay settlements data to December 2001 produced by the IRS Pay Databank show the increase in settlements slowing in the three months to December, particularly for manual workers. Indicators of earnings are likely to underestimate the full extent of the underlying increase in wage moderation. Revisions to the National Minimum Wage (NMW) in October brought the minimum rate of pay for adults up to [pounds sterling]4.10 from [pounds sterling]3.70 per hour. Estimates from the Low Pay Commission suggest that this should have raised the total wage bill, and hence for given employment average earnings, by 0.3 per cent. Thus, the observed decline in average earnings growth comes on top of an expected increase in wage inflation due to revisions to the NMW The estimates of average earnings shown in table 6 are calculated from National Accounts data and are defined in terms of total labour compensation per employee. We expect growth in average earnings to decrease to 4.2 per cent this year from an estimated rate of 5.2 pe r cent last year. Growth in unit labour costs will also slow with the weakening in the labour market and as productivity growth picks up (chart 7).

Wholesale prices of manufacturing products continue to fall due to disinflationary pressure in the world economy. Producers are helped somewhat by more rapid decreases in input prices due to the decline in oil prices. The year-on-year fall in input prices in the fourth quarter was 8 1/4 per cent, or under 2 1/2 per cent excluding petrol products. We expect inflation in wholesale products, excluding petrol products, to remain subdued this year, picking up in the second half of the year. Wholesale prices are helping to hold down consumer price inflation, despite the buoyant behaviour of household expenditure. The retail price index excluding mortgage interest rate payments is expected to rise by an annual rate of 1.5 per cent this year, despite sharp reductions in interest rates in the second half of last year. The rate is forecast to fall to 1.4 per cent in the second quarter of the year and 1.3 per cent in the third quarter. Not too much weight should be put on this because our model uses seasonally-adjusted data while the MPC target is not seasonally adjusted. The seasonal pattern can be erratic. Minutes of the January meeting of the Monetary Policy Committee indicate that below target inflation may be preferred to further interest rate reductions which might lead to a worsening of the imbalance between the buoyant household and weak company sectors. We expect the inflation rate to return to its target value of 2.5 per cent next By then import prices are likely to become a source of inflationary pressure and the full impact of recent monetary loosening will have worked through to prices.

National and sectoral saving (table 12)

Table 12 shows the balance between saving and investment in each of the institutional sectors of the economy and for the nation as a whole. An excess of investment over saving is financed by means of a financial deficit, and an excess of investment over saving for the nation as a whole is represented by the financial account deficit of the balance of payments (chart 8). We expect the financial account deficit to increase this year and next to almost 3 per cent of GDP due to the Government's spending plans and relatively low household sector savings.

Traditionally, the household sector is a net lender to the rest of the economy. But investment has exceeded saving since 1998. We have discussed our expectations of household sector savings elsewhere. We expect household sector savings to rise as consumers reign in expenditure. The gradual adjustment we assume implies that the household sector remains in deficit over the forecast horizon to the end of 2003. Company sector savings are likely to have increased as a percentage of GDP towards the end of last year and we expect that they will remain high this year with the reduction in investment, falling back again next year as fixed investment picks up. Companies are expected to borrow at a net rate of around 1/2 and 1 1/2 per cent of GDP per annum this year and next.

The government sector has been saving at a higher rate than it has been investing throughout the Labour government's first term in parliament. The combination of the economic slowdown and the ambitious spending plans outlined in the PBR is expected to reverse this position. We expect the government sector financial account to slide into deficit this year, contributing approximately 1/2 a percentage point of GDP per annum to the current account deficit this year and next.

The medium term (table 13)

The way in which the economy behaves over the medium term is determined in part by the shocks that hit the economy, which are inherently unpredictable. But there are other important influences that can be foreseen. These include the size and the composition of the population, forthcoming changes in the policy framework as well as adjustment to existing disequilibria. Our forecast of the medium term is thus our view of trend and the way in which the economy will adjust to current imbalances absent further shocks.

GDP growth is presently projected to average 2.6 per cent in the longer term, with labour productivity rising by around 2 1/4 per cent per annum, and the ILO unemployment rate rising to just under 6 per cent. Short-term interest rates are assumed to average 5.2 per cent in he long term. This level serves to hold annual inflation at 2 per cent per annum on average. We have discussed the benefits of reducing the target for underlying retail price inflation before (National Institute Economic Review no. 176, April 2001). A 2 per cent RPIX inflation target would be consistent with the ECB's target for harmonised consumer price inflation in the Euro Area and it is not difficult to imagine a situation in which trend inflation rates would align. Inflation at 2.5 per cent would result in a higher interest rate.

Long-term interest rates are assumed to average 5.1 per cent in the long term, just below the short-term interest rate, reflecting the shortage of government stock relative to the minimum funding requirement of pension funds. The exchange rate is assumed to depreciate slightly over the forecast period, reflecting a UK interest rate higher than that of other major economies. The current account deficit stabilises at around 3 per cent of GDP in 2003-5; it is then expected fall to 2 per cent of GDP following a revival in our trading partners. In the medium term, government sector spending, particularly investment, is assumed to stabilise at a proportion of GDP broadly consistent with the Treasury forecast set out in the PBR. Public sector net borrowing is expected to stabilise at around 1 1/2 per cent of GDP in the long term.

Forecast errors and the probability distribution (tables 14 and 15)

Table 14 gives summary information on the accuracy of our published forecasts in the first quarter of the year for selected key variables. We have included summary information on forecast errors made in comparison to outturns for the period 1989-2000. For inflation we have used the period 1993-2000. Compared to previous publications we have excluded forecast errors from the period 1982-88/92. There is good reason to exclude forecast errors made in the 1980s. The shift to a low inflation regime in the 1990s implies that the magnitude of inflation forecast errors made previously is likely to exaggerate the uncertainty surrounding the central forecast. The shift to a more stable macroeconomic environment in the 1990s provides a similar justification for excluding forecast errors for real GDP growth from the 1980s, but we include the recession of the early 1990s so as not to underestimate uncertainty. The forecast errors in table 14 are thus smaller than in previous publications. For example, the average absolute error of forecasts published in January/February for real GDP growth in the current year is 0.7 per cent over the period 1989-2000 compared to 1.0 per cent over the period 1982-99. The average absolute error of forecast errors for real GDP growth a year ahead is 0.8 per cent over the period 1989-2000, compared to 1.4 over the period 1982-99. Similarly, for inflation the average absolute error of forecasts published in January/February for the current and next year is 0.8 and 1.2 per cent over the period 1993-2000 compared to 1.1 and 1.8 per cent over the period 1982-99.

The information on past forecast accuracy can be used in a variety of ways to help assess the uncertainty inherent in the forecast. We can construct prediction intervals for the forecasts assuming a distribution for past and future forecast errors. A rough order of magnitude can be obtained through constructing a 70 per cent confidence interval around the central forecast using plus and minus the average absolute forecast error reported in table 14. For our forecast of 2.1 per cent GDP growth in 2002 this yields a range of 1.4 per cent to 2.8 percent. The comparable error band for growth in 2003 is 1.8 per cent to 3.4 per cent. It is worth noting that the forecast errors provide a reasonable indication of the degree of difficulty associated with forecasting particular variables. Forecasts of investment growth are inherently more uncertain than those of consumers' expenditure for instance.

To calculate the probability distribution of our growth and inflation forecasts reported in table 15 we adopt a slightly more sophisticated approach by assuming a parametric density function for the forecasts, typically a normal distribution. This allows us to calculate more accurately the likelihood of the outturn being within a specific range. This is useful when we wish to consider recession possibilities. Also, for the targeted measure of inflation, RPIX, there are key trigger points at which the Governor of the Bank of England is expected to justify why the inflation rate has fallen outside the designated range. We calculated the standard error of the forecast and used the normal cumulative density function to evaluate the likelihood of GDP growth and RPIX inflation falling within designated bands.

We calculate that there is a 40 per cent chance that real GDP growth will fall between 2 and 3 per cent per annum in 2002. The probability of growth below 2 per cent is 45 per cent and the chance of growth below 1 per cent is 10 per cent. Our central forecast for 2003 is for growth of 2.6 per cent, with a 34 and 13 per cent chance that it falls below 2 and 1 per cent respectively.

Our central forecast for the annual inflation rate in the last quarter of 2002 is 1.6 per cent, generating a 46 per cent chance that the Governor of the Bank of England will have to write to the Chancellor of the Exchequer explaining how monetary policy will be used to raise the inflation rate. However, our projections for inflation earlier in the year are for figures below 1.5 per cent. This means that the chance the Governor will have to write an excuse letter is over 50 per cent. There is a much smaller chance that he will have to do so during the course of next year. Our central forecast for the annual inflation rate in the last quarter of 2003 is 2.5 per cent, generating a 14 per cent chance of inflation falling below 1.5 per cent and an equal chance of inflation rising above 3.5 per cent.

[Graph omitted]

[Graph omitted]

[Graph omitted]

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[Graph omitted]

Table 5.

Gross domestic product and components of expenditure

[pounds sterling] billion, 1995 prices, seasonally adjusted

 Final consumption expenditure Gross capital
 formation

 Gross
 Households General fixed in-
 & NPISH (a) gov't vestment

1998 514.8 145.0 149.1
1999 536.5 149.1 150.5
2000 558.6 151.9 157.8
2001 578.8 156.5 160.6
2002 597.7 164.1 164.8
2003 613.1 167.4 173.4

2001 Q1 142.6 38.6 39.7
2001 Q2 144.0 38.9 40.7
2001 Q3 145.5 39.2 39.9
2001 Q4 146.7 39.8 40.3

2002 Q1 147.9 40.3 40.5
2002 Q2 149.0 40.9 41.0
2002 Q3 149.9 41.3 41.4
2002 Q4 150.9 41.6 41.9

2003 Q1 151.8 41.7 42.5
2003 Q2 152.8 41.8 43.1
2003 Q3 153.8 41.9 43.6
2003 Q4 154.6 42.0 44.2

Percentage changes
1998/97 3.8 1.5 13.2
1999/98 4.2 2.8 0.9
2000/99 4.1 1.9 4.9
2001/00 3.6 3.0 1.8
2002/01 3.3 4.8 2.6
2003/02 2.6 2.0 5.2
2001Q4/00Q4 3.6 4.8 -2.1
2002Q4/00Q4 2.9 4.5 4.1
2003Q4/02Q4 2.5 0.9 5.4

 Gross capital Domestic Total Total
 formation
 demand exports final
 expendi-
 Changes in ture
 inventories (b)

1998 4.6 813.5 245.8 1059.2
1999 5.2 841.2 258.9 1100.2
2000 2.9 871.2 285.6 1157.1
2001 1.9 897.7 289.0 1186.8
2002 0.9 927.5 289.3 1217.1
2003 2.0 955.9 305.9 1262.1

2001 Q1 1.5 222.5 74.7 297.2
2001 Q2 0.1 223.8 73.2 297.0
2001 Q3 0.5 225.0 70.5 295.7
2001 Q4 -0.3 226.5 70.6 296.9

2002 Q1 -0.1 228.6 71.1 299.7
2002 Q2 0.3 231.1 71.9 303.1
2002 Q3 0.3 233.0 72.7 305.7
2002 Q4 0.3 234.8 73.7 308.5

2003 Q1 0.3 236.4 74.6 311.2
2003 Q2 0.5 238.2 75.8 314.0
2003 Q3 0.6 239.9 77.1 317.1
2003 Q4 0.6 241.4 78.4 319.8

Percentage changes
1998/97 24.7 5.1 3.0 4.6
1999/98 12.2 3.4 5.4 3.9
2000/99 -43.6 3.6 10.3 5.2
2001/00 -36.8 3.0 1.2 2.6
2002/01 -52.5 3.3 0.1 2.6
2003/02 127.3 3.1 5.7 3.7
2001Q4/00Q4 -158.1 2.5 -3.9 0.8
2002Q4/00Q4 -240.0 3.7 4.4 3.9
2003Q4/02Q4 71.4 2.8 6.4 3.7

 Total Residual GDP Adjust- GDP
 imports at ment to at
 market basic basic
 prices prices prices


1998 272.9 0.0 786.3 86.4 699.9
1999 297.2 0.0 803.0 88.7 714.3
2000 329.7 0.3 827.5 91.3 736.1
2001 339.6 0.3 847.2 94.5 752.7
2002 352.2 0.3 864.8 96.0 768.8
2003 374.8 0.4 887.3 98.5 788.8

2001 Q1 86.7 0.1 210.5 23.2 187.3
2001 Q2 85.4 0.1 211.6 23.5 188.0
2001 Q3 83.1 0.1 212.5 24.0 188.5
2001 Q4 84.3 0.1 212.6 23.8 188.8

2002 Q1 85.6 0.1 214.1 23.7 190.4
2002 Q2 87.5 0.1 215.6 23.9 191.7
2002 Q3 88.9 0.1 216.9 24.1 192.8
2002 Q4 90.2 0.1 218.3 24.3 194.0

2003 Q1 94.5 0.1 219.7 24.4 195.3
2003 Q2 92.9 0.1 221.1 24.5 196.6
2003 Q3 94.5 0.1 222.6 24.7 197.9
2003 Q4 95.9 0.1 224.0 24.9 199.1

Percentage changes
1998/97 9.6 3.0 1.5 3.2
1999/98 8.9 2.1 2.7 2.1
2000/99 10.9 3.0 2.9 3.1
2001/00 3.0 2.4 3.5 2.3
2002/01 3.7 2.1 1.6 2.1
2003/02 6.4 2.6 2.6 2.6
2001Q4/00Q4 -1.4 1.7 3.2 1.5
2002Q4/00Q4 7.0 2.7 2.0 2.8
2003Q4/02Q4 6.3 2.6 2.5 2.6

Notes: (a)Non-profit institutions serving households.

(b)Including acquisitions less disposals of valuables and quarterly
alignment adjustment.
Table 6.

Household income and expenditure

Seasonally adjusted

 Average (a) Compensation
 earnings of employees


 1995 = 100 [pounds sterling]
 billion, current
 prices

1998 112.9 464.3
1999 118.2 494.2
2000 123.1 522.0
2001 129.5 553.4
2002 135.0 577.5
2003 140.9 604.3

2001 Q1 128.0 136.6
2001 Q2 128.7 137.4
2001 Q3 130.0 138.9
2001 Q4 131.5 140.6

2002 Q1 132.9 142.0
2002 Q2 134.3 143.6
2002 Q3 135.7 145.1
2002 Q4 137.2 146.8

2003 Q1 138.6 148.4
2003 Q2 140.1 150.2
2003 Q3 141.6 152.0
2003 Q4 143.1 153.8

Percentage changes
1998/97 4.6 7.2
1999/98 4.6 6.4
2000/99 4.2 5.6
2001/00 5.2 6.0
2002/01 4.2 4.3
2003/02 4.3 4.6

2001Q4/00Q4 5.0 5.4
2002Q4/01Q4 4.3 4.4
2003Q4/02Q4 4.3 4.7

 Gross Real
 disposable household
 income disposable
 income (b)
 [pounds sterling] billion, [pounds
 current prices sterling]
 billion, 1995
 prices

1998 575.3 531.1
1999 604.3 549.3
2000 633.0 572.1
2001 672.6 599.0
2002 701.6 6 16.3
2003 738.4 634.9

2001 Q1 166.3 149.6
2001 Q2 167.6 149.3
2001 Q3 168.5 149.5
2001 Q4 170.3 150.7

2002 Q1 171.7 151.7
2002 Q2 174.5 153.7
2002 Q3 176.4 154.7
2002 Q4 178.9 156.2

2003 Q1 181.0 157.2
2003 Q2 183.7 158.5
2003 Q3 185.9 159.3
2003 Q4 187.8 159.9

Percentage changes
1998/97 2.3 -0.4
1999/98 5.0 3.4
2000/99 4.7 4.1
2001/00 6.3 4.7
2002/01 4.3 2.9
2003/02 5.3 3.0

2001Q4/00Q4 5.0 3.1
2002Q4/01Q4 5.1 3.7
2003Q4/02Q4 5.0 2.4

 Final consumption expenditure
 Savings
 ratio (c)
 Total Durable
 [pounds sterling] billion, 1995 prices percent

1998 514.8 52.2 5.7
1999 536.5 56.0 4.7
2000 558.6 59.2 4.1
2001 578.8 65.6 5.2
2002 597.7 69.0 5.1
2003 613.1 71.4 5.5

2001 Q1 142.6 15.8 6.4
2001 Q2 144.0 16.4 5.9
2001 Q3 145.5 16.7 4.2
2001 Q4 146.7 16.8 4.5

2002 Q1 147.9 17.0 4.7
2002 Q2 149.0 17.2 5.1
2002 Q3 149.9 17.4 5.2
2002 Q4 150.9 17.5 5.5

2003 Q1 151.8 17.6 5.5
2003 Q2 152.8 17.8 5.6
2003 Q3 153.8 17.9 5.6
2003 Q4 154.6 18.0 5.4

Percentage changes
1998/97 3.8 7.1
1999/98 4.2 7.4
2000/99 4.1 5.6
2001/00 3.6 11.0
2002/01 3.3 5.1
2003/02 2.6 3.4

2001Q4/00Q4 3.6 9.8
2002Q4/01Q4 2.9 4.3
2003Q4/02Q4 2.5 2.9

 Net Total
 House financial net
 prices(d) assets worth
 [pounds
 1995 = 100 sterling]billion

1998 125.7 2048.6 3553.5
1999 139.4 2446.3 4176.5
2000 160.2 2304.2 4160.1
2001 175.2 1778.3 3806.9
2002 187.2 1740.3 3848.5
2003 196.7 1769.1 3998.0

2001 Q1 166.5 2086.1 3931.6
2001 Q2 172.5 2054.8 3966.3
2001 Q3 178.7 1825.5 3805.1
2001 Q4 183.2 1778.3 3806.9

2002 Q1 184.4 1754.9 3797.1
2002 Q2 186.2 1749.2 3811.4
2002 Q3 188.0 1744.9 3828.0
2002 Q4 190.2 1740.3 3848.5

2003 Q1 192.7 1743.7 3880.2
2003 Q2 195.5 1749.9 3918.5
2003 Q3 198.1 1757.8 3956.8
2003 Q4 200.6 1769.1 3998.0

Percentage changes
1998/97 11.5 6.44 10.1
1999/98 10.9 19.41 17.5
2000/99 14.9 -5.81 -0.3
2001/00 9.4 -22.82 -8.4
2002/01 6.8 -2.14 1.0
2003/02 5.1 1.66 3.8

2001Q4/00Q4 9.4 -22.82 -8.4
2002Q4/01Q4 3.8 -2.14 1.0
2003Q4/02Q4 5.5 1.66 3.8

Notes: (a)Average earnings equals total labour compensation divided by
the number of employees in employment.

(b)Deflated by consumers' expenditure deflator.

(c)Includes adjustment for change in net equity of households in pension
funds.

(d)Department of Environment, mix adjusted.
Table 7.

Forecasts of fixed investment

[pounds sterling]billion, 1995 prices, seasonally adjusted

 Business investment Private
 Manufact- Non-manu- Total housing (a)
 uring facturing

1998 20.7 90.3 111.0 26.5
1999 17.8 95.1 112.9 26.2
2000 17.8 100.9 118.7 26.4
2001 16.9 103.0 119.9 25.7
2002 15.7 104.6 120.3 26.7
2003 16.6 109.7 126.3 27.5

2001 Q1 4.5 25.3 29.7 6.5
2001 Q2 4.5 26.0 30.5 6.4
2001 Q3 4.0 26.0 30.0 6.3
2001 Q4 4.0 25.7 29.7 6.4

2002 Q1 3.9 25.7 29.6 6.6
2002 Q2 3.9 26.0 29.9 6.7
2002 Q3 3.9 26.3 30.2 6.7
2002 Q4 4.0 26.6 30.6 6.7

2003 Q1 4.0 27.0 31.0 6.8
2003 Q2 4.1 27.3 31.4 6.9
2003 Q3 4.2 27.6 31.8 6.9
2003 Q4 4.3 27.9 32.2 7.0

Percentage changes
1998/97 4.4 22.8 18.9 -1.9
1999/98 -14.1 5.3 1.7 -1.3
2000/99 0.1 6.1 5.1 0.8
2001/00 -5.1 2.1 1.0 -2.4
2002/01 -6.8 1.6 0.4 3.9
2003/02 5.4 4.9 5.0 3.0

2001Q4/00Q4 -11.1 -4.5 -5.5 3.9
2002Q4/01Q4 0.2 3.5 3.1 4.6
2003Q4/02Q4 6.8 4.9 5.2 3.3

 General Total User cost Corporate
 government of capital profit share
 (%) of GDP (%)

1998 11.5 149.1 12.1 25.3
1999 11.4 150.5 11.4 24.3
2000 12.7 157.8 11.4 24.6
2001 14.9 160.6 11.0 23.9
2002 17.7 164.8 10.8 23.9
2003 19.5 173.4 10.8 24.5

2001 Q1 3.5 39.7 10.9 24.1
2001 Q2 3.8 40.7 11.1 23.5
2001 Q3 3.5 39.9 11.2 24.4
2001 Q4 4.1 40.3 10.9 23.7

2002 Q1 4.3 40.5 10.9 23.8
2002 Q2 4.4 41.0 10.8 23.9
2002 Q3 4.5 41.4 10.8 24.0
2002 Q4 4.6 41.9 10.8 24.1

2003 Q1 4.7 42.5 10.8 24.2
2003 Q2 4.8 43.1 10.8 24.4
2003 Q3 4.9 43.6 10.8 24.5
2003 Q4 5.0 44.2 10.8 24.6

Percentage changes
1998/97 2.5 13.2
1999/98 -1.4 0.9
2000/99 11.5 4.9
2001/00 17.6 1.8
2002/01 18.5 2.6
2003/02 10.5 5.2

2001Q4/00Q4 17.5 -2.1
2002Q4/01Q4 10.8 4.1
2003Q4/02Q4 9.9 5.4

(a)Includes private sector transfer costs of non-produced assets.
Table 8.

Balance of payments: current account

Seasonally adjusted

 Exports Exports Imports
 of manu- of goods of manu-
 factures factures

 ([pounds sterling] billion at 1995 prices) (a)

1998 156.0 181.6 183.3
1999 164.2 189.5 199.3
2000 184.9 211.5 225.4
2001 190.4 216.2 234.8
2002 190.7 216.9 246.7
2003 203.4 230.6 265.0

2001 Q1 49.3 55.9 60.1
2001 Q2 48.2 54.6 59.1
2001 Q3 46.3 52.7 57.2
2001 Q4 46.5 53.0 58.4

2002 Q1 46.8 53.3 59.7
2002 Q2 47.3 53.8 61.2
2002 Q3 47.8 54.4 62.3
2002 Q4 48.8 55.4 63.5

2003 Q1 49.5 56.2 64.5
2003 Q2 50.4 57.1 65.7
2003 Q3 51.3 58.1 66.9
2003 Q4 52.2 59.1 68.0

Percentage change

1998/97 1.9 1.3 10.0
1999/98 5.3 4.4 8.7
2000/99 12.6 11.6 13.1
2001/00 3.0 2.2 4.1
2002/01 0.1 0.3 5.1
2003/02 6.7 6.3 7.4

2001 Q4/00 Q4 -3.1 -3.3 -0.5
2002 Q4/01 Q4 4.8 4.6 8.7
2003 Q4/02 Q4 7.0 6.7 7.1

 Imports Terms of Export
 of goods trade (b) price
 competi-
 itiveness (d)
 ([pounds
 sterling] billion
 at 1995 prices)
 (a)

1998 217.2 106.8 112.6
1999 234.1 107.5 114.8
2000 262.2 108.8 117.3
2001 272.7 109.3 115.1
2002 285.8 110.5 115.7
2003 306.4 112.6 115.4

2001 Q1 69.8 109.4 115.0
2001 Q2 68.8 108.7 114.6
2001 Q3 66.4 108.8 115.3
2001 Q4 67.7 110.1 115.7

2002 Q1 69.2 109.4 115.9
2002 Q2 70.9 110.3 115.7
2002 Q3 72.2 110.8 115.6
2002 Q4 73.5 111.3 115.5

2003 Q1 74.7 111.8 115.4
2003 Q2 76.0 112.5 115.4
2003 Q3 77.3 112.9 115.5
2003 Q4 78.5 113.1 115.4

Percentage change

1998/97 9.0 2.2 2.7
1999/98 7.8 0.7 2.0
2000/99 12.0 1.1 2.2
2001/00 4.0 0.5 -1.9
2002/01 4.8 1.1 0.5
2003/02 7.2 1.9 -0.2

2001 Q4/00 Q4 -0.6 1.1 -0.7
2002 Q4/01 Q4 8.5 1.1 -0.2
2003 Q4/02 Q4 6.9 1.6 -0.1

 Goods Invisibles Current World
 balance balance trade (c)


 ([pounds sterling] billion) 1994=100

1998 -21.8 17.0 -4.8 136.1
1999 -27.5 8.4 -19.1 145.0
2000 -30.0 13.0 -17.0 163.0
2001 -33.5 19.4 -14.0 163.2
2002 -40.1 17.2 -22.9 169.4
2003 -41.5 11.4 -30.1 181.7

2001 Q1 -7.9 5.9 -2.0 166.7
2001 Q2 -9.3 4.7 -4.6 163.1
2001 Q3 -8.0 6.0 -2.0 159.9
2001 Q4 -8.3 2.9 -5.4 163.1

2002 Q1 -9.5 3.9 -5.6 165.9
2002 Q2 -10.0 4.4 -5.6 167.9
2002 Q3 -10.3 4.6 -5.8 170.4
2002 Q4 -10.3 4.4 -5.9 173.2

2003 Q1 -10.3 3.7 -6.7 176.3
2003 Q2 -10.3 3.0 -7.3 179.7
2003 Q3 -10.4 2.7 -7.7 183.5
2003 Q4 -10.4 2.0 -8.4 187.2

Percentage change

1998/97 7.5
1999/98 6.6
2000/99 12.4
2001/00 0.1
2002/01 3.8
2003/02 7.3

2001 Q4/00 Q4 -3.1
2002 Q4/01 Q4 6.2
2003 Q4/02 Q4 8.1

 World
 oil
 price (e)

 $

1998 12.4
1999 17.3
2000 27.1
2001 24.2
2002 21.5
2003 22.0

2001 Q1 24.6
2001 Q2 26.1
2001 Q3 24.5
2001 Q4 21.5

2002 Q1 20.0
2002 Q2 22.0
2002 Q3 22.0
2002 Q4 21.9

2003 Q1 21.9
2003 Q2 22.0
2003 Q3 22.0
2003 Q4 22.1

Percentage change

1998/97 -33.3
1999/98 40.2
2000/99 56.3
2001/00 -10.8
2002/01 -11.2
2003/02 2.4

2001 Q4/00 Q4 -24.5
2002 Q4/01 Q4 2.0
2003 Q4/02 Q4 0.6

Notes: (a)Balance of payments basis.

(b)Ratio of average value of exports of goods to imports of goods, 1995
= 100.

(c)UK export market weights.

(d)A rise denotes a loss in UK competitiveness, 1994 = 100.

(e)Per barrel, OPEC average.
Table 9.

Output and productivity

Seasonally adjusted, 1995 = 100

 Sectoral output (a)
 Manufacturing Public Distri- Business
 bution services

 (0.218) (0.224) (0.145) (0.142)

1998 102.8 105.4 109.5 124.9
1999 103.1 106.9 112.1 130.4
2000 105.1 109.3 115.0 137.8
2001 102.8 111.0 119.8 146.3
2002 101.0 114.8 124.0 152.2
2003 103.1 116.8 126.4 159.1

2001 Q1 105.3 110.5 117.7 143.4
2001 Q2 103.4 110.8 118.9 147.0
2001 Q3 102.2 111.2 120.4 146.6
2001 Q4 100.2 111.6 122.3 148.1

2002 Q1 100.2 113.0 123.0 149.7
2002 Q2 100.7 114.3 123.8 151.4
2002 Q3 101.2 115.4 124.3 153.0
2002 Q4 101.7 116.2 125.0 154.7

2003 Q1 102.2 116.5 125.5 156.5
2003 Q2 102.7 116.7 126.1 158.2
2003 Q3 103.4 116.9 126.7 159.9
2003 Q4 104.0 117.1 127.2 161.6

Percentage changes

1998/97 0.7 1.9 2.8 8.9
1999/98 0.3 1.4 2.3 4.4
2000/99 1.9 2.2 2.6 5.7
2001/00 -2.2 1.6 4.2 6.2
2002/01 -1.8 3.4 3.5 4.0
2003/02 2.1 1.8 1.9 4.5

2001 Q4/00Q4 -5.6 1.3 4.4 5.7
2002 Q4/01Q4 1.5 4.1 2.2 4.5
2003 Q4/02Q4 2.3 0.7 1.8 4.5

 Sectoral output (a) GDP (b)
 Construction Oil Rest Total


 (0.052) (0.021) (0.198)

1998 107.0 107.5 110.7 109.4
1999 107.8 112.2 113.5 111.6
2000 109.7 110.7 118.1 115.0
2001 113.2 104.6 121.9 117.6
2002 115.4 103.6 124.6 120.1
2003 117.3 107.1 128.2 123.3

2001 Q1 111.2 102.2 121.3 117.1
2001 Q2 113.0 108.2 120.8 117.5
2001 Q3 114.2 109.9 122.0 117.9
2001 Q4 114.4 98.1 123.4 118.0

2002 Q1 114.8 98.6 125.0 119.0
2002 Q2 115.2 104.1 124.4 119.8
2002 Q3 115.6 105.6 124.2 120.5
2002 Q4 116.1 106.0 124.9 121.3

2003 Q1 116.6 106.5 126.4 122.1
2003 Q2 117.1 106.9 127.5 122.9
2003 Q3 117.6 107.3 128.9 123.7
2003 Q4 118.1 107.8 130.0 124.4

Percentage changes

1998/97 1.3 2.6 3.6 3.2
1999/98 0.8 4.4 2.5 2.1
2000/99 1.8 -1.3 4.0 3.1
2001/00 3.2 -5.5 3.2 2.3
2002/01 2.0 -1.0 2.3 2.1
2003/02 1.7 3.4 2.9 2.6

2001 Q4/00Q4 4.8 -3.9 2.8 1.5
2002 Q4/01Q4 1.5 8.1 1.3 2.8
2003 Q4/02Q4 1.7 1.6 4.1 2.6

 GDP (b)
 Per Manufact-
 worker uring pro-
 ductivity (c)


1998 104.6 100.1
1999 105.4 103.7
2000 107.6 109.1
2001 109.4 111.1
2002 111.7 113.5
2003 114.3 117.7

2001 Q1 108.9 111.7
2001 Q2 109.2 110.5
2001 Q3 109.6 110.4
2001 Q4 109.8 111.7

2002 Q1 110.7 112.6
2002 Q2 111.5 113.0
2002 Q3 112.1 113.5
2002 Q4 112.7 114.8

2003 Q1 113.4 115.9
2003 Q2 114.0 117.1
2003 Q3 114.6 118.3
2003 Q4 115.2 119.5

Percentage changes

1998/97 1.5 0.1
1999/98 0.8 3.6
2000/99 2.1 5.2
2001/00 1.7 1.9
2002/01 2.1 2.1
2003/02 2.3 3.7

2001 Q4/00Q4 1.4 0.0
2002 Q4/01Q4 2.7 2.7
2003 Q4/02Q4 2.2 4.1

Notes: (a)1995 share of output in parentheses.

(b)Gross value added at constant 1995 basic prices.

(c)Including self-employment.
Table 10.

The UK labour market

Seasonally adjusted, millions

 Employment, thousands (a)

 Self Training
 Employees employment schemes Total

1998 24745 3517 344 28605
1999 25177 3461 335 28974
2000 25521 3407 327 29255
2001 25720 3397 309 29426
2002 25751 3376 300 29427
2003 25827 3388 300 29515

2001 Q1 25694 3398 319 29410
2001 Q2 25723 3406 318 29448
2001 Q3 25721 3410 300 29431
2001 Q4 25741 3374 300 29415

2002 Q1 25744 3375 300 29419
2002 Q2 25744 3375 300 29419
2002 Q3 25751 3376 300 29427
2002 Q4 25764 3378 300 29442

2003 Q1 25785 3383 300 29468
2003 Q2 25811 3385 300 29496
2003 Q3 25841 3390 300 29531
2003 Q4 25870 3395 300 29565

Percentage changes

1998/97 2.5 -2.7 -9.2 1.7
1999/98 1.7 -1.6 -2.5 1.3
2000/99 1.4 -1.6 -2.5 1.0
2001/00 0.8 -0.3 -5.3 0.6
2002/01 0.1 -0.6 -3.0 0.0
2003/02 0.3 0.4 0.0 0.3

2001Q4/00Q4 0.4 -1.0 -7.1 0.1
2002Q4/01Q4 0.1 0.1 0.0 0.1
2003Q4/02Q4 0.4 0.5 0.0 0.4

 Unemployment, thousands

 ILO
 definition Claimant Longterm (c)

1998 1887 1348 604
1999 1813 1248 522
2000 1669 1088 422
2001 1543 969 349
2002 1631 1052 361
2003 1723 1156 376

2001 Q1 1551 996 313
2001 Q2 1521 973 371
2001 Q3 1549 949 349
2001 Q4 1549 960 365

2002 Q1 1585 1000 318
2002 Q2 1617 1036 379
2002 Q3 1647 1070 364
2002 Q4 1677 1103 383

2003 Q1 1704 1133 356
2003 Q2 1711 1143 383
2003 Q3 1731 1165 379
2003 Q4 1747 1184 385

Percentage changes

1998/97 -9.0 -14.9 -24.4
1999/98 -3.9 -7.4 -13.5
2000/99 -8.0 -12.8 -19.2
2001/00 -7.6 -10.9 -17.1
2002/01 5.8 8.5 3.3
2003/02 5.6 9.9 4.0

2001Q4/00Q4 -3.9 -7.7 -11.2
2002Q4/01Q4 8.2 14.9 4.9
2003Q4/02Q4 4.2 7.3 0.5

 Participation, thousands

 Civilian Population of
 workforce (a) Inactive working age

1998 29953 5567 36060
1999 30222 5419 36206
2000 30343 5439 36362
2001 30395 5630 36599
2002 30479 5750 36808
2003 30671 5756 36995

2001 Q1 30407 5552 36513
2001 Q2 30421 5606 36575
2001 Q3 30379 5650 36630
2001 Q4 30375 5712 36676

2002 Q1 30419 5734 36738
2002 Q2 30455 5764 36799
2002 Q3 30498 5757 36831
2002 Q4 30545 5744 36863

2003 Q1 30602 5752 36925
2003 Q2 30639 5780 36986
2003 Q3 30696 5756 37018
2003 Q4 30749 5738 37050

Percentage changes

1998/97 0.8 -1.9 0.5
1999/98 0.9 -2.7 0.4
2000/99 0.4 0.4 0.4
2001/00 0.2 3.5 0.7
2002/01 0.3 2.1 0.6
2003/02 0.6 0.1 0.5

2001Q4/00Q4 -0.1 4.5 0.6
2002Q4/01Q4 0.6 0.6 0.5
2003Q4/02Q4 0.7 -0.1 0.5

 Underutilisation % (b)
 ILO Claimant Population
 unemployment unemployment not employed
 rate rate rate

1998 6.3 4.5 20.7
1999 6.0 4.1 20.0
2000 5.5 3.6 19.5
2001 5.1 3.2 19.6
2002 5.4 3.5 20.1
2003 5.6 3.8 20.2

2001 Q1 5.1 3.3 19.5
2001 Q2 5.0 3.2 19.5
2001 Q3 5.1 3.1 19.7
2001 Q4 5.1 3.2 19.8

2002 Q1 5.2 3.3 19.9
2002 Q2 5.3 3.4 20.1
2002 Q3 5.4 3.5 20.1
2002 Q4 5.5 3.6 20.1

2003 Q1 5.6 3.7 20.2
2003 Q2 5.6 3.7 20.3
2003 Q3 5.6 3.8 20.2
2003 Q4 5.7 3.8 20.2

Percentage changes

1998/97
1999/98
2000/99
2001/00
2002/01
2003/02

2001Q4/00Q4
2002Q4/01Q4
2003Q4/02Q4

Notes: (a)Includes self-employed, excludes HM Forces. Average figure per
quarter.

(b)The population not employed is defined as the ratio of the inactive
Table 11.

Price indices

Seasonally adjusted, 1995=100


 Whole- Harmonised
 Unit sale Consumer index of
 labour Imports price price consumer
 costs deflator index (b) index prices

1998 109.8 87.2 101.9 108.3 103.4
1999 114.4 85.0 101.6 110.0 104.8
2000 117.3 85.5 102.4 110.6 105.6
2001 121.5 85.5 102.6 112.3 106.9
2002 124.2 85.6 103.0 113.8 107.9
2003 126.7 87.4 104.8 116.3 109.8

2001 Q1 120.6 85.6 102.5 111.2 105.7
2001 Q2 120.8 86.6 102.6 112.3 107.3
2001 Q3 121.5 84.7 102.7 112.7 107.3
2001 Q4 122.9 85.1 102.7 113.0 107.4
2002 Q1 123.4 84.8 102.7 113.2 107.5
2002 Q2 123.8 85.5 102.8 113.6 107.7
2002 Q3 124.4 85.9 103.1 114.0 108.0
2002 Q4 125.1 86.3 103.5 114.5 108.4
2003 Q1 125.7 86.7 104.0 115.2 108.9
2003 Q2 126.3 87.1 104.5 115.9 109.5
2003 Q3 127.0 87.6 105.0 116.7 110.1
2003 Q4 127.7 88.2 105.6 117.4 110.7

Percentage changes

1998/97 4.1 -6.2 -0.1 2.7 1.6
1999/98 4.2 -2.5 -0.3 1.6 1.4
2000/99 2.5 0.5 0.8 0.6 0.8
2001/00 3.6 0.0 0.2 1.5 1.2
2002/01 2.2 0.2 0.4 1.4 0.9
2003/02 2.0 2.1 1.7 2.2 1.8
2001Q4/00Q4 3.6 -1.5 0.0 1.8 1.0
2002Q4/01Q4 1.7 1.4 0.8 1.4 1.0
2003Q4/02Q4 2.1 2.2 2.1 2.5 2.2

 Retail price index (a)
 Excluding GDP
 Excluding mortgage deflator
 All mortgage interest & (basic
 itmes interest indirect taxes prices)

1998 109.3 108.6 107.0 108.8
1999 111.0 111.1 108.7 111.3
2000 114.2 113.4 110.7 113.1
2001 116.3 115.8 113.3 116.5
2002 117.9 117.6 115.3 118.8
2003 121.3 120.4 118.0 122.7

2001 Q1 115.2 114.2 111.5 115.0
2001 Q2 116.7 116.2 113.6 116.3
2001 Q3 116.7 116.4 114.0 116.9
2001 Q4 116.6 116.6 114.3 117.7
2002 Q1 116.3 116.3 114.2 117.6
2002 Q2 117.9 117.8 115.3 118.3
2002 Q3 118.3 117.9 115.5 119.1
2002 Q4 119.3 118.4 116.0 120.1
2003 Q1 119.7 118.8 116.4 121.0
2003 Q2 121.3 120.4 117.9 122.2
2003 Q3 121.9 121.0 118.5 123.2
2003 Q4 122.4 121.4 119.0 124.2

Percentage changes

1998/97 3.4 2.7 2.0 2.4
1999/98 1.6 2.3 1.6 2.3
2000/99 2.9 2.1 1.8 1.6
2001/00 1.8 2.1 2.4 3.0
2002/01 1.4 1.5 1.7 2.0
2003/02 2.9 2.4 2.4 3.3
2001Q4/00Q4 1.0 2.0 2.5 3.2
2002Q4/01Q4 2.3 1.6 1.5 2.0
2003Q4/02Q4 2.6 2.5 2.5 3.4


 GDP
 deflator
 (market
 prices)

1998 109.3
1999 112.2
2000 114.2
2001 116.9
2002 119.4
2003 123.1

2001 Q1 115.5
2001 Q2 116.7
2001 Q3 117.2
2001 Q4 118.1
2002 Q1 118.2
2002 Q2 119.0
2002 Q3 119.7
2002 Q4 120.6
2003 Q1 121.6
2003 Q2 122.7
2003 Q3 123.7
2003 Q4 124.6

Percentage changes

1998/97 2.9
1999/98 2.6
2000/99 1.7
2001/00 2.4
2002/01 2.1
2003/02 3.1
2001Q4/00Q4 2.7
2002Q4/01Q4 2.1
2003Q4/02Q4 3.3

Notes: (a)Not seasonally adjusted.

(b)Excluding food, drink, tobacco and petroleum.
Table 12.

National and sectoral savings

As a percentage of GDP

 Household sector Company sector Government
 sector
 Saving Investment Saving Investment Saving

1998 3.9 4.0 11.7 13.0 2.0
1999 3.3 4.2 9.8 12.6 2.6
2000 2.8 4.0 9.9 12.6 3.2
2001 3.6 4.2 9.5 11.8 2.9
2002 3.6 4.3 10.4 11.1 0.9
2003 3.8 4.4 9.6 11.2 1.2

2001 Q1 4.5 4.4 9.3 12.2 3.3
2001 Q2 4.1 4.4 8.1 11.9 3.7
2001 Q3 2.9 4.1 9.8 12.1 3.9
2001 Q4 3.1 4.1 10.9 11.1 0.6

2002 Q1 3.2 4.3 11.1 11.1 0.3
2002 Q2 3.6 4.3 10.3 11.1 0.9
2002 Q3 3.6 4.3 10.2 11.2 1.0
2002 Q4 3.8 4.3 9.8 11.1 1.3

2003 Q1 3.8 4.3 9.6 11.1 1.3
2003 Q2 3.9 4.4 9.5 11.2 1.1
2003 Q3 3.9 4.4 9.6 11.3 1.1
2003 Q4 3.7 4.4 9.6 11.3 1.1

 Government Whole economy Finance
 sector from
 Investment Saving Investment overseas

1998 1.1 17.6 18.2 0.6
1999 1.0 15.7 17.8 2.1
2000 1.1 15.9 17.7 1.8
2001 1.4 16.0 17.4 1.4
2002 1.6 14.8 17.0 2.2
2003 1.7 14.6 17.3 2.8

2001 Q1 1.2 17.0 17.8 0.8
2001 Q2 1.4 15.8 17.7 1.9
2001 Q3 1.3 16.7 17.5 0.8
2001 Q4 1.5 14.6 16.7 2.1

2002 Q1 1.6 14.7 16.9 2.2
2002 Q2 1.6 14.8 17.0 2.2
2002 Q3 1.6 14.9 17.1 2.2
2002 Q4 1.7 14.9 17.1 2.2

2003 Q1 1.7 14.7 17.2 2.5
2003 Q2 1.7 14.6 17.3 2.7
2003 Q3 1.8 14.6 17.4 2.8
2003 Q4 1.8 14.5 17.5 3.0
Table 13.

Long-term projections

All figures percentage change unless otherwise stated

 1999 2000 2001 2002 2003 2004

GDP (basic prices) 2.1 3.1 2.3 2.1 2.6 2.5
Average Earnings 4.6 4.2 5.2 4.2 4.3 4.4
GDP Deflator (basic prices) 2.3 1.6 3.0 2.0 3.3 3.3
RPIX 2.3 2.1 2.1 1.5 2.4 2.5
Manufacturing productivity 3.6 5.2 1.9 2.1 3.7 4.0
Whole economy productivity 0.8 2.1 1.7 2.1 2.3 2.0
Workforce jobs 1.3 1.0 0.6 0.0 0.3 0.5
ILO Unemployment rate (%) 6.0 5.5 5.1 5.4 5.6 5.8
Current account
 (% of GDP) -2.1 -1.8 -1.4 -2.2 -2.8 -3.2
Total managed expenditure
 (% of GDP) 37.9 37.9 38.5 39.9 39.8 40.0
Public sector net borrowing
 (% GDP) -1.2 -1.8 -1.1 1.2 1.2 1.8
Effective exchange rate
 (1990 = 100) 103.7 107.5 105.8 105.5 104.1 103.1
3 month interest rates (%) 5.4 6.1 4.9 4.5 5.0 5.1
10 year interest rates (%) 5.1 5.3 5.0 5.0 5.1 5.1

 2005 2006-10

GDP (basic prices) 2.5 2.6
Average Earnings 4.4 4.2
GDP Deflator (basic prices) 3.0 2.4
RPIX 2.3 2.0
Manufacturing productivity 3.7 4.0
Whole economy productivity 2.0 2.2
Workforce jobs 0.5 0.4
ILO Unemployment rate (%) 5.9 5.9
Current account
 (% of GDP) -3.0 -1.8
Total managed expenditure
 (% of GDP) 40.2 40.6
Public sector net borrowing
 (% GDP) 1.8 1.5
Effective exchange rate
 (1990 = 100) 102.6 102.2
3 month interest rates (%) 5.1 5.2
10 year interest rates (%) 5.1 5.1
Table 14.

Average absolute errors. NIESR forecasts made in January/February (*)

All figures per cent unless otherwise indicated

 Current year

 Average error Error range

Real GDP growth 0.7 0.0 - 2.0
Domestic demand growth 0.9 0.0 - 2.6
Consumers expenditure growth 1.0 0.1 - 2.9
Investment growth 2.1 0.2 - 10.1
Export volume growth 2.5 1.0 - 4.7
Import volume growth 2.8 0.3 - 5.8
Real personal disposable income growth 1.2 0.3 - 2.4
Current account ([pounds sterling]bn) 6.1 1.1 - 12.5
Public sector borrowing requirement 11.3 0.4 - 31.9
 ([pounds sterling]bn)(a)
Retail price inflation (Q4) 0.8 0.1 - 1.4

 Year ahead

 Average error Error range

Real GDP growth 0.8 0.0 - 3.7
Domestic demand growth 1.4 0.5 - 5.4
Consumers expenditure growth 1.3 0.2 - 3.5
Investment growth 3.7 0.2 - 12.1
Export volume growth 2.6 0.6 - 5.5
Import volume growth 4.0 0.1 - 9.9
Real personal disposable income growth 1.4 0.5 - 2.2
Current account ([pounds sterling]bn) 6.7 0.2 - 17.3
Public sector borrowing requirement 18.0 1.6 - 46.3
 ([pounds sterling]bn)(a)
Retail price inflation (Q4) 1.2 0.2 - 2.5

 Average
 outturn
 1989-2000

Real GDP growth 2.2
Domestic demand growth 2.4
Consumers expenditure growth 2.6
Investment growth 2.8
Export volume growth 6.0
Import volume growth 6.1
Real personal disposable income growth 2.8
Current account ([pounds sterling]bn) -12.6
Public sector borrowing requirement 10.7
 ([pounds sterling]bn)(a)
Retail price inflation (Q4) 2.6

(*)All errors defined by substracting the forecasts from the outturns
for 1989-2000; retail price inflation errors calculated from outturns
for 1993-2000.

(a)Financial year.
Table 15.

Probability distribution of growth and inflation forecasts

Inflation: probability of 12 month RPIX inflation falling in the
following ranges

 2002Q4 2003Q4

less than 1.5 per cent 46 14
1.5 to 2.0 per cent 21 15
2.O to 2.5 per cent 17 21
2.5 to 3.0 per cent 10 21
3.0 to 3.5 per cent 4 15
more than 3.5 per cent 2 14

 100 100
Central projection 1.6 2.5
Standard deviation 0.92 0.92
Growth: probability of annual growth rate falling in the following
ranges

 2002 2003

less than 0 per cent 1 3
0 to 1 per cent 9 10
1 to 2 per cent 35 21
2 to 3 per cent 40 27
3 to 4 per cent 14 23
more than 4 per cent 1 16

 100 100
 2.1 2.6
 0.89 1.42