Current Savings Account Percentage

Prospects for the UK economy.

The production of this forecast is supported by the
Institute’s Corporate Members:
Bank of England
 central bank and note-issuing institution of Great Britain. Popularly known as the Old Lady of Threadneedle Street, its main office stands on the street of that name in London.
, HM Treasury,
Mizuho
   
 Research Institute Ltd, the Office for National Statistics,
Santander
 city (1990 pop. 194,221), capital of Cantabria prov., N Spain, in Cantabria, on the Bay of Biscay. It is a seaport, fishing center, and a popular resort. On the nearby peninsula of Magdalena is a former royal summer palace.
 (UK) plc and by the members of the NiGEM users group.

Introduction

The current position of the UK economy is undeniably poor.
Adjusting for general price inflation, the economy in 2012 was no larger
than it had been a year earlier. The economy is
in the midst

 of the most

protracted
  
tr.v. pro·tract·ed, pro·tract·ing, pro·tracts
1. To draw out or lengthen in time; prolong:

2.
 recovery in output in the past one hundred years. In fact
economic growth has been absent from much of the past two years. The
economy was only 1/2 per cent larger at the end of 2012 than it had been
in the third quarter of 2010. Over this period the UK population has
continued to expand, implying that the level of
per capita

 
GDP
 (guanosine diphosphate): see guanine.
 has
declined by I per cent between the third quarter of 2010 and the final
quarter of 2012.

Such poor GDP performance is in stark contrast to the labour
market; employment increased by 1 per cent and average hours worked were
0.7 per cent higher over the same period. This leaves us with the

conundrum
 A problem with no satisfactory solution; a dilemma
 of the absence of sustained economic recovery at the same time
as a robust improvement in the state of the labour market. A number of
hypotheses have been put forward to solve this
puzzle

 (see the
forthcoming
OECD
 see Organization for Economic Cooperation and Development.
 Economic Survey of the UK for a summary)–a puzzle
exacerbated by its appearance in other, mainly European economies (see
figure A7). Rising employment and falling unemployment rates are
positive developments, but this poor productivity performance is
worrying in its
persistence

.

Since the end of recession in 2009 much of any output gains have
been reversed over a series of quarters. Meryvn King, the
Governor of
the Bank of England

, has described the quarterly growth profile as
‘zig-zagging’ (see figure 1). Quarterly movements in the
volume of GDP are an important contributor to our understanding of how
the economy is evolving. However, there is a tendency to focus on
movements in one or two quarters rather than on the broader trend. The
most recent example of this is the current obsession with whether the

contraction
 in physics: see expansion.


contraction, in grammar
 in writing: see abbreviation.


contraction – reduction
 in output at the end of last year is the first step to a
‘triple-dip’. This distracts from the fact that over the past
two years output has been broadly flat. The concern should not be
whether or not the economy
shrank
  
v.
A past tense of shrink.


Verb

a past tense of shrink

 shrink
 slightly at the start of 2013 to

fulfil
 also ful·fil  
tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils
1. To bring into actuality; effect:

2.
 the ‘technical’ definition of recession, but whether

stagnation

 persists throughout 2013.

Economic recovery depends upon a
resumption

 of
consumer spending

. A
balanced economic recovery also requires the resumption of corporate
spending and a pick-up in export growth. We project GDP growth of 0.7
per cent this year, rising to around 1 1/2 per cent in 2014 and just
over 2 per cent
per annum

 in the period 2015-17. If our forecast is
realised, then 2015 would be the first year where GDP growth rises above
its potential rate of around 2 per cent per annum since the onset of
recession in 2008. The rate of unemployment is expected to remain
broadly stable over the next couple of years, at around 8 per cent of
the labour force. As economic recovery begins to take hold in 2015, we
expect to see a sustained fall in the unemployment rate.

[FIGURE 1 OMITTED]

With growth significantly below the economy’s potential rate
this year there is room for the government to use policy to boost
demand. The modest announcement of an increase in investment this year
and next is welcome, but this does not translate into a temporary fiscal

loosening
 /loo·sen·ing/ () freeing from restraint or strictness.


loosening of associations
 due to offsets from the scaling back of spending elsewhere. We
remain of the opinion that looser policy in the near term, through
significant increases in net investment, particularly on infrastructure
projects, would reinforce the return to growth in the UK this year.

Temporary fiscal support for the economy would not throw the
government’s fiscal plans off course. The primary target of the
government’s Fiscal Mandate is for the cyclically-adjusted current
budget to be in surplus in five years time. With the Autumn Statement
this
evaluation period

 has now moved on to 2017-18. We expect this
target to be met with significant room to spare. Our public sector net
debt projections suggest that the government’s secondary fiscal
target (for public sector net debt as a per cent of GDP to be falling in
2015-16) will be missed. The Office for Budget Responsibility (OBR) has
now reached the same view.

Monetary and financial conditions

Equity markets have rallied sharply across the globe. At the time
of writing, the average
FTSE All-share index

 for
January
 see month.
 2013 was 5.9
per cent higher than the average in
October
 see month.
 2012 (figure 2). In nominal
terms the index has reached its highest level since January 2008 (the
pre-recession peak in GDP
according to

prep.
1. As stated or indicated by; on the authority of:

2. In keeping with:

3.
 our monthly estimate of GDP).
Equity prices are still 1.6 per cent below their level in January 2008
once consumer price inflation has been accounted for. Equity prices
should be related to the net present value of future profit flows.
Future profits, especially for the largest corporations, are as much
about the prospects for the global economy as the outlook for the
domestic economy. As such our equity price forecast is driven by
nominal
GDP

 growth across the G7, adjusting for exchange rate developments. Our
expectation of global growth this year and next is little changed from
our October 2012 Review, and we assume that equity prices will remain
broadly flat through much of the rest of this year. But overall we
expect equity prices to have risen by 6 per cent, on average, in 2013
compared to 2012, an inflation adjusted increase of around 4 per cent
per annum.

[FIGURE 2 OMITTED]

The funding conditions for banks have also improved
noticeably
  
adj.
1. Evident; observable:

2. Worthy of notice; significant.
 since our October forecast. Figure 3 presents a proxy for UK banks’
marginal funding costs. This is the average price of 5-year CDS for the
major UK banks and Nationwide over 3-month interbank rates. This proxy
measure most recently peaked at around 4 per cent in June 2012, but
since then has almost
halved
  
tr.v. halved, halv·ing, halves
1. To divide (something) into two equal portions or parts.

2. To lessen or reduce by half:

3.
. A range of monetary policies introduced in
2012 have likely contributed to this: the Bank of England’s
Extended Term Collateral Repo (ETCR) and Funding for Lending Scheme
(
FLS

FLS Fire Life Safety
FLS Fatty Liver Syndrome
FLS Foreign Language School
), and the ECB’s announcement of Outright Monetary Transactions
(
OMT

).

Schemes such as the FLS are explicitly designed not only to improve
the funding conditions for banks, but also to boost lending to the real
economy in support of economic growth. On this the evidence of
improvements is more
muted
  
adj.
1.
a. Muffled; indistinct:

b. Mute or subdued; softened:

2.
. The first quarterly report on the FLS (for
the third quarter of 2012) showed little actual take-up of the available
allocations to banks and building societies. Net lending to the real
economy increased by just 0.5 billion [pounds sterling]. The largest
banks and building societies (Barclays, Lloyds Banking Group,
Nationwide,
RBS

RBS Rural Business Cooperative Service
RBS Ribosome Binding Site  
 Group and Santander) account for 87.1 per cent of the
base stock of loans used to calculate allocations of funding under the
FLS. This aggregate’s net lending figure was negative in the third
quarter of 2013, with their outstanding stock of loans shrinking by 1.2
billion [pounds sterling]. We assume that the scheme will be relatively
successful in boosting net lending to the real economy. However, this
supply of lending is likely to be concentrated on mortgages, which
attract less risk weighting in capital adequacy calculations than
lending to non-financial firms, in particular SMEs. The latest Bank of
England Trends in Lending publication supports this view. Net lending
for house purchase reached 6.6 billion [pounds sterling] in
December
 see month.
 2012, the greatest magnitude of lending since the end of 2009. In
contrast, net lending to non-financial firms continued to decline at the
end of last year. Since the start of 2009 the outstanding stock of loans
from monetary financial institutions to non-financial corporates has
fallen by over 100 billion [pounds sterling]. The introduction of
schemes such as the FLS suggests that the Treasury and Bank of England
view financial markets as currently
dysfunctional
 also dis·func·tion  
n.
Abnormal or impaired functioning, especially of a bodily system or social group.


dys·func
. But these schemes
focus support, in the form of cheap financing, on the existing
concentrated banking sector rather than push forward new frameworks for
lending.

[FIGURE 3 OMITTED]

The actions of policymakers appear to have adjusted expectations
with regard to the likelihood of negative tail risks being realised,
such as a disorderly break-up of the Euro Area. The direct result of
this is the easing of tensions and a decline in
risk aversion

The tendency of investors to avoid risky investments. Thus, if two investments offer the same expected yield but have different risk characteristics, investors will choose the one with the lowest variability in returns.
 in the
global financial sector. However, we should not be
complacent
  
adj.
1. Contented to a fault; self-satisfied and unconcerned:

2. Eager to please; complaisant.
. While
these actions have reduced the probability of the severe
downside

 risks
to our central forecast from emerging, a number of Euro Area member
states (
Greece
 Gr. Hellas or Ellas, republic (2005 est. pop. 10,668,000), 50,944 sq mi (131,945 sq km), SE Europe. It occupies the southernmost part of the Balkan Peninsula and borders on the Ionian Sea in the west, on the Mediterranean Sea in the south, on
,
Italy
 , Ital. Italia, officially Italian Republic, republic (2005 est. pop. 58,103,000), 116,303 sq mi (301,225 sq km), S Europe.
 and
Spain
 Span. España , officially Kingdom of Spain, constitutional monarchy (2005 est. pop. 40,341,000), 194,884 sq mi (504,750 sq km), including the Balearic and Canary islands, SW Europe.
) are expected to endure yet another year
of recession and rising unemployment. The Euro Area crisis has not yet
been resolved. The action of the
ECB

, through its announcement of OMT,
is an important and necessary support for the Euro Area, but it is no
cure. That must be implemented by Euro Area politicians and
policymakers. Delay and
inaction
  
n.
Lack or absence of action.


Noun

lack of action; inertia

Noun 1.
 on their part could very well
derail
  
intr. & tr.v. de·railed, de·rail·ing, de·rails
1. To run or cause to run off the rails.

2.
 what appear to be the
tentative

adj not final or definite, such as an experimental or clinical finding that has not been validated.
 beginnings of a turning point for many
European economies. And while economic confidence in the financial
market does appear to be returning, it is far less clear that this has
affected the risk appetite associated with household saving and firm
investment decisions. For example, in the UK the
CBI

abbr.
cumulative book index


 Confederation of British Industry

 n abbr (= Confederation of British Industry) →
 Industrial Trends
Survey published in January 2013 highlights that the majority of firms
still report uncertainty about future demand as weighing on investment
decisions.
Respondents

 also note concerns over the future rate of return
on investments, consistent with an outlook for growth that is still
relatively weak in the near term.

[FIGURE 4 OMITTED]

Yield curves across the OECD have also risen, reflecting the
general improvement in confidence. Figure 4 reports snapshots of the
yield curve for the UK derived from the Bank of England’s
government liability yield curve. This suggests that financial market
expectations with regard to the future path of interest rates have
returned to where they were in April 2012. These imply that the first
increase in Bank Rate will occur in the summer of 2014. We continue to
expect the first movement in interest rates to occur at the start of
2015. While some members of the
MPC

 have expressed concern over the
persistence of above target inflation rates, we do not expect them to
begin to raise Bank Rate until they are confident economic recovery is
in place. There appears to be a growing view that the effectiveness of
Quantitative

Easing (QE) in its existing form has largely been spent, and we do
not expect any further expansion of the Bank’s balance sheet during
the remainder of the current Governor’s tenure. There is a degree
of uncertainty over how the Bank will approach monetary policy under the
incoming Governor,
Mark Carney

, but we should remember that the Bank of
England has only operational independence; the Chancellor provides the
definition of price stability that the Bank must use in each 12-month
period. The
remit

 may not change, but Mark Carney has already alluded to
a number of tools that could be used in future by the Bank. To this the
actions of the US Fed’s Federal Open Market Committee may be a
useful guide, with their use of commitments and the transparent
publication of forecasts for interest rates to affect expectations in an
attempt to boost demand in the short term.

The Prime Minister has announced that if the Conservative Party is
re-elected in 2015, and his negotiations with European partners are
successful, a
referendum
 referral of proposed laws or constitutional amendments to the electorate for final approval. This direct form of legislation, along with the initiative, was known in Greece and other early democracies.
 will be held in 2017 on whether or not the UK
remains in the EU. Assuming these conditions are met, it means a wait of
over four years to the referendum. This creates uncertainty over the
UK’s future participation in the EU. But it is not clear that this
uncertainty is any greater than the likely counterfactual of the
continuation of the
visceral
 /vis·cer·al/ () pertaining to a viscus.


adj.
Relating to, situated in, or affecting the viscera.


visceral

pertaining to a viscus.
 debate over our participation in the EU
would not.

Between the third quarters of 2011 and 2012 the UK’s trade
weighted exchange rate increased by 6.7 per cent, pushing it to its
highest level since the third quarter of 2008. This rise in the
effective exchange rate was less to do with an appreciation of sterling
and more to do with the depreciation of the euro as the Euro Area crisis

intensified
  
v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies

v.tr.
1. To make intense or more intense:
. Over the year to the third quarter of 2012 the
Euro-Sterling exchange rate
depreciated

 by 9.8 per cent. The easing of
tensions and risk
premia

 in the Euro Area has led to an appreciation of
the euro against many currencies at the end of 2012 and start of 2013.
At the time of our forecast, the euro had appreciated by 3 per cent
between the average level in the third quarter of 2012 and the average
of the first three weeks in 2013. We assume that nominal
bilateral
 /bi·lat·er·al/ () having two sides, or pertaining to both sides.


adj.
1. Having or formed of two sides; two-sided.

2.
 exchange rates remain unchanged until the end of
September
 see month.
 2013. They
then follow the path implied by a backward-looking
uncovered

 
interest
rate parity

 condition. This suggests the UK’s effective exchange
rate will remain relatively stable over the next few years, rising by no
more than 1/2 per cent per annum.

Prices and earnings

The rate of
CPI

 inflation accelerated from 2.2 per cent per annum
in September 2012 to 2.7 per cent in each of the three months of the
final quarter of that year. Price rises by energy suppliers proved a
significant upward contribution to the average increase in consumer
prices, but it was the extension of
tuition

 fees from 3,000 [pounds
sterling] to a maximum of 9,000 [pounds sterling] in
England and Wales

 that provided the single largest positive contribution to rate of
inflation. The contribution for educational fees is normally around 0.1
percentage point per annum, but rose to 0.4 percentage point in the
final quarter of 2012. The extension of tuition fees is to be gradually
phased in over the next three years, providing an elevated positive
contribution to the rate of CPI inflation from education over the period
October 2012-September 2015.

[FIGURE 5 OMITTED]

Figure 5 shows the data and our forecast for the CPI inflation
rate. Our
modal

 projection is for the rate of CPI inflation to remain
above the target rate of 2 per cent per annum over next few years due,
primarily, to the roll-out of tuition fees. From the fourth quarter of
2015 we expect the rate of CPI inflation to drop to just below target,
where the inflation rate is expected to
stabilise

. Figure 5 also
presents confidence intervals around our forecast. These bounds are for
the 80, 85 and 90 per cent confidence intervals, and are derived from
simulations using our global
econometric model

, NiGEM. The distribution
is weighted below the central projection due to interest rates remaining
at the zero lower bound in the UK until the start of 2015. The
simulations implicitly allow for the fact that the conventional monetary
policy response to any further
deflationary
  
n.
1. The act of deflating or the condition of being deflated.

2. A persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money because of a reduction in available
 shock is limited.
Nonetheless, there remains a significant risk of the CPI inflation rate
remaining above target through to the end of our forecast horizon.

Despite the weight of statistical evidence that the methodology
used to estimate the Retail Price Index (
RPI

) is
flawed
  
n.
1. An imperfection, often concealed, that impairs soundness:  See Synonyms at blemish.

2.
, and in
opposition to the recommendations of the Consumer Prices Advisory
Committee (
CPAC

CPAC Center for Process Analytical Chemistry
CPAC Conservative Political Action Committee
), the National Statistician and the Statistics Authority
have concluded that the RPI formula will remain unchanged. These
developments caught financial markets by surprise; markets had already
priced in a change to RPI, removing some, or all, of the wedge between
the RPI and CPI due to the ‘formula effect’. The formula
effect has been, on average, 0.7 percentage point between 2005 and 2012.
Our forecast for RPI is unaffected by this announcement. For this year
the upward revision to RPI is due to an upward revision to general
consumer price inflation in the UK due to food and utility price rises.
The largest contribution, however, comes from the increase in mortgage
rates expected over the course of this year. Half the increase in the
RPI inflation rate is due to an upward revision to expectations for
mortgage rates in the UK.

Wage growth remains moderate, continuing to lag the rates of
producer and consumer prices over the past year. The precise point in
time that bonuses and
arrears

 payments, components of an employee’s
compensation package, does vary throughout the year, distorting
movements in Average Weekly Earnings growth. The regular pay component
of Average Weekly Earnings avoids this and can be viewed as a measure of
underlying pay pressures. For the economy as a whole, regular pay has
increased by around 2 per cent per annum since April 2009, less than
both producer and consumer price measures. Pay settlements data suggest
this relative weakness is likely to persist over the course of the next
year. The measure of average earnings growth reported in table A5 is
derived from National Accounts data and is defined as total labour
compensation per employee hour. This is a pre-tax measure of earnings
and also includes employers’ social contributions. We do expect
this measure of earnings to remain relatively
subdued
  
tr.v. sub·dued, sub·du·ing, sub·dues
1. To conquer and subjugate; vanquish. See Synonyms at defeat.

2. To quiet or bring under control by physical force or persuasion; make tractable.

3.
 throughout 2013.
Unemployment is expected to remain broadly flat, exerting downward
pressure on nominal wage growth. The absence of any productivity growth
will continue to add to pressures on employers to keep real producer
wages in check, which we assume they do over the forecast horizon. We
expect unit labour costs to rise by less than 2 per cent per annum, on
average, over the forecast horizon.

The components of demand

The release of the ONS’ Preliminary estimate of GDP provides
the first official estimate of economic growth throughout 2012. This
estimate suggests zero growth in 2012, broadly in line with our forecast
published in the October 2012 Review. We have revised down our
expectation for GDP growth this year, from 1.1 per cent to 0.7 per cent.
Much of this downward revision is due to a base effect from the
quarterly pattern of growth at the end of last year, rather than a
significant re-evaluation of the UK’s near term outlook.

The contributions from the components of demand in 2012 were the
reverse of 2011 when domestic demand contracted by 0.6 per cent. We
estimate that domestic demand more than reversed these losses in 2012,
growing by almost 1 per cent per annum. The missing part of the GDP
identity is the contribution from export less import volumes (net
trade). Net trade contributed 1.5 percentage points to GDP growth in
2011, but we estimate subtracted close to 1 percentage point in 2012.

Real government consumption continued to expand in 2012. This is at
first glance surprising given the heated debate around the scale of

austerity

See also Asceticism, Discipline.

Amish

conservative Christian group in North America noted for its simple, orderly life and nonconformist dress. [Am. Hist.
. There are a number of points to this; the government’s
fiscal consolidation plan has focused on tax increases and reductions in
public sector net investment in the period 2011 to 2012. In addition, it
is the case that between the second quarter of 2010 and the third
quarter of 2012 general government employment dropped by 8.6 per cent
(497 thousand). Over the same period, real general government
consumption increased by 2.5 per cent. The OBR, in their latest Economic
and Fiscal Outlook, suggests that this is due to the calculation of
general government consumption volumes in the National Accounts. Around
two-thirds of the estimate is derived from direct measures such as the
number of operations performed, prescriptions
dispensed
  
v. dis·pensed, dis·pens·ing, dis·pens·es

v.tr.
1. To deal out in parts or portions; distribute. See Synonyms at distribute.

2. To prepare and give out (medicines).

3.
, pupils taught
and court cases heard. As the examples imply, these direct measures are
focused in the departments covering health, education and social
protection. These indicators have continued to rise, pushing up the
estimates of the volume of government consumption. Given the nominal
spending plans for government consumption, this must significantly
affect the
deflator

 on government consumption. Indeed in the third
quarter of 2012 the level of the general government consumption deflator
was only 0.1 per cent higher than in the second quarter of 2010. The
annual rate of growth in this deflator since the third quarter of 2010
has averaged just 0.1 per cent per annum. In the ten years to 2007 the
average rate of growth of this deflator was 4.1 per cent per annum.

Changes to bank holidays for the celebration of the Queen’s

Jubilee
 , in the Bible, a year when alienated property and land were restored, slaves were manumitted, debts were forgiven, and a general sabbatical year was observed in
 depressed export volumes in June 2012.
July
 see month.
 saw a
consequent
  
adj.
1.
a. Following as a natural effect, result, or conclusion:

b.
 
rebound
,
n/v 1. a recovery from illness.
n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus


 adjective
 in export volumes. The month of June is currently included in
the preceding period for the calculation of three-month rolling
estimates. For the final quarter, it will have dropped out of the
preceding three month period, raising export volumes in the third
quarter and exacerbating the fall in volumes in the fourth quarter of
2012. The weak export performance at the end of 2012 was due to exports
to non-EU countries rather than exports to the rest of the EU. In the
three months to
November
 see month.
 2012 the volume of goods exports increased by
0.4 per cent to the EU, and declined by 1.8 per cent to non-EU
destinations. This is likely to be a blip. Despite the
stabilisation

 of
the Euro Area outlook, the single currency bloc remains in a
malaise
 /mal·aise/ () a vague feeling of discomfort.


n.
A vague feeling of bodily discomfort, as at the beginning of an illness.
,
putting downward pressure on the demand for UK
goods and services

. We
expect export volumes to grow by just 0.8 per cent per annum this year.
Over the medium to longer term we expect the emerging markets to become
increasingly important sources of demand for UK exporters.

The sterling effective exchange rate depreciated by around 23 per
cent between the third quarter of 2007 and fourth quarter of 2009.
Export price competitiveness gains were less than half this, suggesting
that exporters absorbed much of the depreciation in sterling into their
profit margins. Given the liquidity concerns many non-financial
corporations would have faced at the height of the global financial
crisis, such responses would appear rational. Unfortunately, these
limited price competitiveness gains have been largely reversed. We have
assumed that exporters are able to regain some price competitiveness
over the next few years, supporting a robust pick-up in export growth as
global demand and world trade return to rates of growth consistent with
a sustained recovery. Over this same period import volume growth is
expected to be around 5 per cent per annum. Net trade is expected to
contribute around 1/2 percentage point per annum to GDP growth, on
average, over the period 2014-17.

Household sector

In the third quarter of 2012, the volume of consumer spending
increased by 0.3 per cent, a
deceleration
 /de·cel·er·a·tion/ () decrease in rate or speed.


early deceleration
 from more robust rates of
growth in the first and second quarters of that year. The fall-back in
consumer spending is even more pronounced as the third quarter
incorporates the 580 million [pounds sterling] of
Olympic
  
adj.
Of or relating to the Olympic Games.


Adjective

of the Olympic Games

Adj. 1. Olympic – of or relating to the Olympic Games; “Olympic winners”
2.
 ticket sales,
the majority of which were purchased in advance by households. Removing
the statistical
artefact

 of advance ticket sales (1) implies the volume
of consumer spending barely increased in the third quarter of 2012.

We expect consumer spending to continue to expand at a relatively
modest pace, by 0.4 per cent in the final quarter of this year. We note
that there are indicators that suggest consumer spending growth might be
weaker than we expected at the end of last year. Retail sales data
suggest that the volume of retail sales contracted by 0.6 per cent in
the final quarter of 2012. However, quarterly movements in retail sales
have only a low correlation with consumer spending growth patterns. This
correlation was even lower over the past five years.

Tuition fees undoubtedly have an impact on the financial position
of the current and future intake of
English and Welsh

 university
students. However, it is unclear that the increase in tuition fees
should have a significant impact on consumer spending over the next few
years. The tuition fees can be paid for through the use of a student
loan from government, and are therefore unlikely to affect the consumer
spending decisions of students in the near term. (2) Parents of new
university students may well forgo current consumption in order to
minimise the accumulation of student debt by their children, but in
aggregate we do not expect the new fees regime to have a noticeable
impact on consumer spending.

We expect consumer spending growth to continue to expand in 2013.
Real consumer wages are expected to be broadly flat this year, while the
recent increases in real assets prices (both housing and financial) are
expected to contribute to some consumer spending growth. This is not to
say that these wealth effects have as robust an effect in a depressed
economy as in ‘normal’ times. While we allow for some wealth
effect to support consumer spending decisions, we expect the higher

average propensity to save

 to be maintained. We forecast consumer
spending growth to rise over the period 2013-17, reaching over 2 per
cent per annum in 2016 and 2017. There are two main factors driving
consumer spending growth over this 5-year forecast horizon: rising real
consumer wages and an increasing population. Once we account for
population growth we can see that consumer spending increases over the
next five years are relatively weak. We expect per capita consumer
spending to increase by an average rate of 1.1 per cent over the period
2013-17. This compares to an annual average rate of 3.1 per cent in the
ten years prior to 2008. Such weak per capita consumer spending growth
suggests that the level of per capita consumption enjoyed at the end of
2007 will only be regained in 2018.

We remain concerned that firms will re-assess their labour input in
the face of rising unit labour costs. There are two approaches to
adjusting labour input: reductions in working hours or reductions in the
number of employed. Both have significant implications for household
incomes. Neither scenario forms our modal projection, but remains a
significant
downside risk

 to consumer spending growth over the next few
years.

The household saving ratio is prone to quite large statistical
revisions. The current vintage is no exception. The
ONS

ONS One Night Stand
ONS Onslaught
ONS Oncology Nursing Society
ONS Object Naming Service
ONS Offshore Northern Seas
 have revised up
their estimate of the saving ratio by an average of 0.7 percentage point
between the first quarter of 2011 and the second quarter of 2012. We
should not be surprised at further revisions to these estimates in
future data vintages. However, what is unlikely to change is the shift
in saving behaviour of households. Between 1998 and 2008 the saving
ratio, on an annual average basis, did not rise above 6 1/2 per cent;
since 2009 the ratio has not dropped below this.

The shift in saving behaviour is a key part of the
retrenchment

n.
The cutting away of superfluous tissue.
 of
households as they gradually improve the position of their balance
sheets. The shift in saving behaviour has lasted for close to five years
and is likely to persist for much of the next decade. We do not expect
households to be able to count on robust real asset price inflation to
support future consumption. It will therefore take significantly higher
saving to fund the preferred level of future consumer spending.

Supply conditions

Gross fixed investment shrank by 0.5 and 0.2 per cent per quarter
in the second and third quarters of 2012, respectively. Both private
housing and general government investment have been behind the relative
weakness over the middle of 2012. We have assumed that general
government investment follows the path as set out by the OBR. This
suggests the volume of general government investment will remain largely
flat in real terms over the next few years, having fallen by 26.3 per
cent in 2011. Housing investment is estimated to have fallen by around 9
per cent last year and remains around 44.1 per cent below its
pre-recession peak. Private sector housing investment is expected to
contribute significantly to a recovery in the UK economy. A relatively
modest pick-up in housing market activity and housebuilding would
generate significant growth in a depressed sector of the economy. We
expect
double digit

 growth from 2014
onwards
  
adj.
Moving or tending forward.

adv. also on·wards
In a direction or toward a position that is ahead in space or time; forward.

Adv. 1.
, but even this is not
enough to return housing investment to levels seen before the financial
crisis. The effect of the intended planning reform by government remains
unclear. There is certainly potential for planning reform to support the
robust expansion of UK cities with growth potential (see Crafts, 2012).

[FIGURE 6 OMITTED]

Business investment in the third quarter of 2012 was still 11.6 per
cent below its pre-recession peak. The volume of business investment
shrank by 14.4 per cent in 2009 and since then has reported only modest
growth. This is despite the sharp drop in the user cost of capital as
monetary policy has been eased and the UK government has aggressively
cut the standard marginal rate of corporation in successive Budgets and
Autumn Statements. The user cost of capital is more a measure of the
price of the cost to large firms, which have access to alternative
sources of finance in the absence of bank lending channels. So despite
the low user cost of capital and the hoarding of cash by these large
firms, they have failed to boost their investments by much. As the CBI
Industrial Trends Survey shows, there is
hesitancy

n.
An involuntary delay or inability in starting the urinary stream.
 on the part of
corporates due to the continued uncertainty over future demand. As
business confidence returns we expect the low cost of capital to support
business investment growth of around 6 per cent per annum in the period
2013-15. In addition, the CBI survey reports low rates of return on
capital as weighing on investment decisions. The net rate of return for
UK manufacturing firms has averaged 4.7 per cent in the first three
quarters of this year. Such low rates of return are a concern; a lack of
investment in the manufacturing sector would
inhibit
 /in·hib·it/ () to retard, arrest, or restrain.


v.
1. To hold back; restrain.

2.
 future
manufacturing productivity growth as well as
constrain
  
tr.v. con·strained, con·strain·ing, con·strains
1. To compel by physical, moral, or circumstantial force; oblige:  See Synonyms at force.

2.
 the capacity of
the major export sector of the UK economy.

Commentators looking to a future Blue Book release to revise away
much of the productivity puzzle are likely to be disappointed. There is
no certainty that the ONS will revise up the estimates of GDP from
recent years. One upward revision that will occur, however, is that to
the Labour Force Statistics. In the spring of 2014 the ONS will release
reweighted Labour Force Statistics. The ONS have released revised
mid-year population estimates for England and Wales for the period 2002
to 2010 in light of Census 2011 (3) (see figure 6). In the absence of
any changes to GDP estimates the productivity level will be revised down
back to 2002. The upward estimates to population growth are not evenly
distributed between the years. However, these revisions would have a
relatively modest effect on productivity
growth rates

, probably little
changing the overall productivity puzzle. However, all else equal, they
will result in a downward revision to the UK economy’s level of
productivity.

Output per hour worked declined by 1.8 per cent in 2012, a sharper
drop than in either 2008 or 2009. This drop in productivity reverses the
modest gains made in 2010 and 2011. Over the next few years,
productivity growth is forecast to grow only weakly, as employment
levels continue to rise. With relatively weak demand for exports this
year and next, it is in relatively low productivity sectors that
employment increases are likely to be concentrated. It is only by 2016
that output per hour worked is expected to have regained the level seen
in 2007.

Public finances

The publication of the 2012 Autumn Statement contained a
significant number of
discretionary policy

 announcements that affect the
period 2012-13 to 2017-18. The overall net effect over this period is an

accumulative

 4.6 billion [pounds sterling] improvement in the position
of the
Exchequer

. However, the majority of this (3.5 billion [pounds
sterling]) is the assumed revenues generated from the auction of the 4G
Spectrum licences. Current policy would appear to use the proceeds from
this auction to reduce the scale of borrowing in 2012-13. We have not
included an assumption for the revenues generated from the 4G auction;
this poses an
upside

 risk to our borrowing forecast for this fiscal
year.

The remaining policy decisions are, then, broadly fiscally neutral
over the 5-year horizon. The Chancellor has announced a 5.3 billion
[pounds sterling] increase in capital expenditures over the two fiscal
years 2013-14 and 2014-15. Other major policy changes are an increase in
the income tax personal allowance in 2013-14 at a cost of 1 billion
[pounds sterling], the cancellation of the fuel duty increase planned
for January 2012 at a cost of 0.9 billion [pounds sterling] in the final
quarter of 2012-13, and a temporary increase in the annual investment
allowance for corporations. These ‘giveaways’ have been funded
through further reductions to departmental spending budgets: 1 billion
[pounds sterling] and 2.4 billion [pounds sterling] in 2013-14 and
2014-15, respectively. To leave the budget changes broadly fiscally
neutral the Chancellor has also announced changes to the uprating of
most working age benefits, for those in or out of work. This is expected
to save the Exchequer 0.5 billion [pounds sterling] in 2013-14 and 1.4
billion [pounds sterling] in 2014-15. The uprating of income tax
thresholds for higher rate taxpayers at only 1 per cent per annum for
two years (2014-15 to 2015-16) is expected to net around 1 billion
[pounds sterling] per annum. Restrictions on tax relief for pensions are
also expected to raise a significant amount of tax over the period
2012-13 to 2017-18. This still leaves a significant shortfall for the
government if they want ensure these tax and spending changes are
fiscally neutral. This is expected to be achieved through the 5.3
billion [pounds sterling] of revenues from tax
repartition
  
n.
1. Distribution; apportionment.

2. A partitioning again or in a different way.

tr.v. re·par·ti·tioned, re·par·ti·tion·ing, re·par·ti·tions
To partition again; redivide.
 from

Switzerland
 , Fr. Suisse, Ger. Schweiz, Ital. Svizzera, officially Swiss Confederation, federal republic (2005 est. pop. 7,489,000), 15,941 sq mi (41,287 sq km), central Europe.
.

The Bank of England’s QE (the Asset Purchase Facility (
APF

n the abbreviation for acidulated phosphate fluoride.
))
programme has steadily been accumulating cash through the receipt of

coupon payments

 on its holding of
gilts

. The ONS have yet to rule on the
treatment of the return of cash to the Treasury. In this forecast we use
the OBR as a guide to their treatment in the public sector. The 23.8
billion [pounds sterling]
accumulated
  
v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates

v.tr.
To gather or pile up; amass. See Synonyms at gather.

v.intr.
To mount up; increase.
 to the end of 2011-12 is treated
as a financial transaction and is assumed to be returned to the Treasury
in 2013-14. From 201314 onwards cash payments, net of any payments from
the Treasury to the APF on the redemption of gilts, are classified as a
current receipt. These are included in ‘other current
receipts’ in table AS. These net payments to the Treasury vary
between 12.3 [pounds sterling] and 6.6 billion [pounds sterling] and
have a noticeable effect on public sector aggregates, reducing the
public sector current budget deficit and public sector net borrowing.

When the Bank of England begins to
shrink
 Vox populi noun A psychiatrist
 its balance sheet,
selling gilts on the secondary market, it will be doing so at a loss
given that the Bank was purchasing some gilts with prices significantly
above par. At this point the Treasury will have to increase its gilt
issuance in order to cover the losses on the Bank of England’s
APE
 any primate of the subfamily Hominoidea, with the possible exception of humans. The small apes, the gibbon and the siamang, and the orangutan, one of the great apes, are found in SE Asia.
 This net payment to the Bank of England is treated as a capital transfer
and incorporated in the net investment figures in the public
sector’s balance sheet. The magnitude of such losses is uncertain,
exposed to yield curve developments, and largely affects the public
finances in the period beyond that presented in table A8. As payments to
the Bank of England are treated as a capital transfer they will not
affect the current balance directly. The change in the treatment of APF
cash surpluses improves the position of the current budget, the
cyclically adjusted version of which is the primary target of the
government’s Fiscal Mandate.

Table 2 presents our forecast for the public sector current budget
and net borrowing including and excluding the effect of transfers to and
from the APE We view the public finances excluding the APF flows as the
appropriate measure of the underlying state of the public finances. At
its peak the APF flows improve the current budget and net borrowing by
around 0.7 per cent of GDP. However, the inclusion of APF flows does not
change the results of our evaluation of the government’s Fiscal
Mandate. As in our October 2012 forecast, we continue to expect the
cyclically-adjusted current budget to have moved into surplus within
five years (the target year has moved on to 2017-18) with more than a 50
per cent chance of success. Since our January 2011 forecast we have
expected the government’s secondary target, for public sector net
debt as a per cent of GDP to be falling in 2015-16, to be missed – a
view that the OBR now agrees with. Public sector net debt is projected
to peak at around 85 per cent of GDP in 2016-17. Beyond 2017-18 we allow
an
endogenous
 /en·dog·e·nous/ () produced within or caused by factors within the organism.


adj.
1. Originating or produced within an organism, tissue, or cell.
 fiscal rule to operate to ensure the current budget moves
into surplus. With borrowing only for net investment, public sector net
debt, as a per cent of GDP, falls on a sustained basis from 2017-18.

Saving and investment

There appears to be some confusion over exactly what
rebalancing

 the UK economy means. The concept can, rightly, be viewed from a number
of perspectives. Table A9 provides such a perspective with respect to
the saving and investment mix in the economy. The figures presented here
are mostly gross of depreciation; the exception is net national saving.
(4) A sector is a net lender to the rest of the economy if its saving
rate is in excess of its investment rate.

The same applies to the economy as a whole; an economy that does
not save enough to fund its own investment must, by definition, require
finance from abroad.
In other words

, it must run a current account
deficit. On an annual basis, the UK has persistently run a current
account deficit since 1984; finance from abroad has been required to
fund the UK’s
capital spending

Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years.
. The current account is the flow
onto the net asset position of an economy. Running persistent current
account deficits results in the accumulation of net foreign liabilities.
This has been a consistent feature of the UK economy since 1995. We
expect the net asset position to be relatively stable over the next few
years as the UK continues to run a persistent current account deficit.
It is only over the medium term that the UK’s net asset position
begins to improve, supported by a current account deficit that narrows
to around 1 per cent of GDP.

The medium term

Our view of the medium-term performance of the economy is normally
a representation of its future potential. One cannot currently derive
such a view from the representation of the medium term in table A10.
This outlook represents the adjustment of the economy from its current

disequilibrium
 /dis·equi·lib·ri·um/ () dysequilibrium.


linkage disequilibrium
. We estimate that the potential (or trend) rate of
economic growth is around 2 per cent per annum. As such we can only
begin to describe an economic recovery when the rate of economic growth
exceeds this. Growth is forecast to rise above 2 per cent per annum in
2015 and is expected to reach, on average, 2 1/2 per cent per annum over
the period 2018-22. However, such growth rates are not enough to close
the output gap quickly, leaving a
prolonged
  
tr.v. pro·longed, pro·long·ing, pro·longs
1. To lengthen in duration; protract.

2. To lengthen in extent.
 negative output gap in the
UK economy. This implies a significant aggregate demand shortfall
lasting a number of years, representing a downside risk to our forecast
of the economy’s potential.

After increasing slightly this year, the unemployment rate is
projected to fall back gradually over the forecast horizon. We expect
the rate of unemployment to settle at around 6 1/2 per cent over the
medium term, around I percentage point higher than the rate of
unemployment experienced prior to the onset of the Great Recession in
2008.

Both employment and productivity growth are expected to increase
gradually over the next few years. Over the medium term productivity
growth is expected to continue to accelerate, recovering some of the
level of productivity lost since 2008. If the UK’s permanent loss
of output is greater than we currently estimate (betweeen 3 and 5 per
cent, see Barrell, 2009), then the degree of productivity growth (and
demand growth) we expect over the medium term may not
materialise

.

The government’s current budget is expected to be in balance
over this period, with borrowing only for net investment. With the flow
of borrowing lower than the rate of nominal GDP growth, the
debt to GDP
ratio

 is put onto a sustained downward
trajectory

The curve described by a body moving through space, as of a meteor through the atmosphere, a planet around the Sun, a projectile fired from a gun, or a rocket in flight.
 over the medium to
longer term. Fiscal policy may well operate differently from our
assumption over this period. At the very least, tighter fiscal policy in
future decades would ensure that public sector debt is reduced more
quickly than currently projected. Such a policy should hopefully ensure
that the government has the fiscal space with which to respond to future
economic crises. We assume that net investment stabilises at around 1
per cent per annum. Such low rates of public sector investment are
unlikely to be consistent with providing the infrastructure and
publically delivered services that the UK economy will need in the
future. Aside from relatively minor adjustments to the capital budget,
the long-term scale of public sector investment will be addressed in the
next Comprehensive Spending Review period. We think it likely that this
will include a significant increase in the plans for net investment.

From 2015 the Bank of England is expected to raise Bank Rate
gradually. We assume that it is first raised around 6-8 months later
than financial markets expect. By the end of 2017 it is assumed to have
increased to around 2.25 per cent. Interest rates are assumed to
continue to rise back to a ‘normal’ level over the subsequent
4-year period. At the same time the Bank of England’s balance sheet
will shrink, implying tighter monetary policy than the headline Bank
Rate figure suggests. If monetary policy follows our assumed path, then
for much of the next decade it can only be described as accommodative.

It is more than likely that the tightening of Bank Rate will not
follow as smooth a path as we assume. Future shocks to the economy,
which are by definition unpredictable, will
elicit
  
tr.v. e·lic·it·ed, e·lic·it·ing, e·lic·its
1.
a. To bring or draw out (something latent); educe.

b. To arrive at (a truth, for example) by logic.

2.
 monetary policy
responses with different signs and to varying degrees over the medium
term. The exact shape of each of these policy responses also depends on
the monetary policy rule in operation. We assume that the Bank of
England continues to operate with
inflation targeting

 at the core of its
remit for price stability. As noted, the Bank of England is only
operationally independent and it is for the Chancellor to decide on the
exact meaning, and consequent target, to achieve price stability in the
UK.

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 Al. Exchange rates and interest rates

                     UK exchange rates             FTSE
                                                 All-share
                Effective     Dollar     Euro      index
               2005 = 100

2007             102.89        2.00      1.46      3306.3
2008              90.69        1.85      1.26      2728.0
2009              81.16        1.57      1.12      2326.0
2010              81.03        1.55      1.17      2818.3
2011              81.05        1.60      1.15      2949.2
2012              84.62        1.59      1.23      2983.4
2013              84.83        1.60      1.23      3163.1
2014              85.10        1.60      1.23      3150.3
2015              85.51        1.60      1.23      3123.1
2016              85.93        1.60      1.23      3132.0
2017              86.30        1.61      1.23      3169.3
2012 Q1           82.69        1.57      1.20      3007.6
2012 Q2           84.78        1.58      1.23      2882.8
2012 Q3           85.76        1.58      1.26      2987.0
2012 Q4           85.25        1.61      1.24      3056.4
2013 Q1           84.86        1.60      1.23      3170.3
2013 Q2           84.80        1.60      1.23      3168.2
2013 Q3           84.79        1.60      1.23      3161.1
2013 Q4           84.87        1.60      1.23      3152.6
2014 Q1           84.96        1.60      1.23      3154.0
2014 Q2           85.05        1.60      1.23      3162.3
2014 Q3           85.14        1.60      1.23      3150.8
2014 Q4           85.24        1.60      1.23      3134.1

Percentage changes

2007/2006          2.1          8.6      -0.4        9.4
2008/2007         -11.9        -7.4     -14.0      -17.5
2009/2008         -10.5       -15.5     -10.6      -14.7
2010/2009         -0.2         -1.2       3.8       21.2
2011/2010          0.0          3.7      -1.2        4.6
2012/2011          4.4         -1.1       7.0        1.2
2013/2012          0.2          1.1      -0.6        6.0
2014/2013          0.3         -0.2       0.2       -0.4
201512014          0.5         -0.1       0.2       -0.9
201612015          0.5          0.3       0.0        0.3
201712016          0.4          0.3      -0.1        1.2
2012Q4/11Q4        4.4          2.2       6.1        9.3
2013Q4/12Q4       -0.4         -0.3      -0.9        3.2
2014Q4/13Q4        0.4         -0.2       0.2       -0.6

                                  Interest rates

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

2007             6.0         7.4        5.0         4.3        5.50
2008             5.5         6.9        4.5         3.2        2.00
2009             1.2         4.0        3.7         1.0        0.50
2010             0.7         4.0        3.6         0.9        0.50
2011             0.9         4.1        3.1         1.1        0.50
2012             0.9         4.2        1.8         0.9        0.50
2013             0.6         4.4        2.2         0.9        0.50
2014             0.7         4.4        2.7         0.9        0.50
2015             1.0         4.5        3.1         1.3        1.25
2016             1.6         4.9        3.5         1.8        1.75
2017             2.2         5.2        3.7         2.3        2.25
2012 Q1          1.1         4.1        2.1         1.0        0.50
2012 Q2          1.0         4.2        1.8         1.0        0.50
2012 Q3          0.8         4.3        1.7         0.9        0.50
2012 Q4          0.5         4.3        1.8         0.9        0.50
2013 Q1          0.5         4.3        2.0         0.9        0.50
2013 Q2          0.7         4.5        2.2         0.9        0.50
2013 Q3          0.7         4.5        2.3         0.9        0.50
2013 Q4          0.7         4.4        2.4         0.9        0.50
2014 Q1          0.7         4.4        2.5         0.9        0.50
2014 Q2          0.7         4.4        2.6         0.9        0.50
2014 Q3          0.7         4.3        2.7         0.9        0.50
2014 Q4          0.7         4.3        2.8         1.0        0.50

Percentage changes

2007/2006
2008/2007
2009/2008
2010/2009
2011/2010
2012/2011
2013/2012
2014/2013
201512014
201612015
201712016
2012Q4/11Q4
2013Q4/12Q4
2014Q4/13Q4

Notes: We assume that bilateral exchange rates for the first quarter
of this year are the average of the first two weeks of January.
We then assume that bilateral rates remain constant for the second
and third quarters of 2013 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

2009 = 100

Retail price index

               Unit    Imports    Exports      Whole-       World
              labour   deflator   deflator   sale price   oil price
              costs                          index (a)     ($) (b)

2007           92.2      85.9       87.4        94.1         70.5
2008           95.3      97.0       97.6        97.6         95.7
2009          100.0     100.0      100.0       100.0         61.8
2010          100.6     104.5      104.2       103.0         78.8
2011          102.1     112.1      109.7       106.5        108.5
2012          105.3     111.2      109.3       108.4        110.5
2013          106.7     111.2      109.3       110.8        103.9
2014          108.6     111.0      109.8       113.8         98.1
2015          110.8     111.2      111.0       116.3         98.0
2016          112.8     112.5      112.5       118.8        100.0
2017          114.8     114.2      114.3       121.5        102.0

Percentage changes

2007/2006      1.9        0.4        0.4        1.4         11.2
2008/2007      3.3       12.8       11.7        3.7         35.7
2009/2008      5.0        3.1        2.4        2.5        -35.4
2010/2009      0.6        4.5        4.2        3.0         27.6
2011/2010      1.5        7.3        5.3        3.3         37.6
2012/2011      3.2       -0.8       -0.3        1.8          1.8
2013/2012      1.4        0.0        0.0        2.2         -5.9
2014/2013      1.8       -0.2        0.4        2.8         -5.6
2015/2014      2.0        0.2        1.1        2.2          0.0
2016/2015      1.8        1.1        1.4        2.2          2.0
2017/2016      1.8        1.5        1.6        2.3          2.0
2012Q4/11Q4    1.4       -2.1       -0.9        1.4          1.1
2013Q4/12Q4    1.5        0.7        0.2        3.1         -7.5
2014Q4/13Q4    1.9       -0.5        0.6        2.4         -3.9

                           GDP
              Consump-   deflator    All    Excluding   Consumer
                tion     (market    items   mortgage     prices
              deflator   prices)            interest     index

2007            95.3       95.8      96.7      94.0       94.5
2008            98.6       98.7     100.5      98.1       97.9
2009           100.0      100.0     100.0     100.0      100.0
2010           103.7      102.8     104.6     104.8      103.3
2011           108.3      105.3     110.0     110.3      107.9
2012           111.2      107.2     113.6     113.8      111.0
2013           113.5      109.2     117.6     117.1      113.6
2014           115.6      111.6     120.7     120.2      116.2
2015           117.8      114.1     124.4     123.4      118.7
2016           120.0      116.3     127.9     126.4      120.9
2017           122.4      118.6     132.0     129.6      123.2

Percentage changes

2007/2006       2.6        2.2       4.3       3.2        2.3
2008/2007       3.4        3.1       4.0       4.3        3.6
2009/2008       1.4        1.3      -0.5       2.0        2.2
2010/2009       3.7        2.8       4.6       4.8        3.3
2011/2010       4.5        2.5       5.2       5.3        4.5
2012/2011       2.7        1.8       3.2       3.2        2.8
2013/2012       2.0        1.9       3.5       2.9        2.4
2014/2013       1.9        1.1       2.7       2.7        2.3
2015/2014       1.9        2.2       3.1       2.7        2.2
2016/2015       1.9        2.0       2.8       2.4        1.8
2017/2016       2.0        2.0       3.2       2.6        1.9
2012Q4/11Q4     2.3        1.9       3.1       3.0        2.7
2013Q4/12Q4     1.9        1.8       3.3       2.7        2.2
2014Q4/13Q4     1.9        2.3       2.7       2.7        2.3

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], 2009 prices

             Final consumption         Gross capital
             expenditure               formation

             Households     General      Gross     Changes in
             & NPISH (a)     govt.     fixed in-   inventories
                                       vestment        (b)

2007            940.0        320.1       253.6        10.5
2008            924.9        325.3       241.8         4.8
2009            896.3        327.9       208.7       -10.4
2010            908.3        329.3       216.0         2.1
2011            899.3        329.0       209.8         8.4
2012            909.0        337.7       209.7         3.8
2013            921.8        336.2       216.4         6.9
2014            933.1        331.6       231.9         6.1
2015            950.3        327.6       246.4         6.1
2016            972.3        320.5       260.0         6.1
2017            997.6        310.8       272.9         6.1

Percentage changes

2007/2006        2.7          0.6         8.2          3.7
2008/2007       -1.6          1.6        -4.6         -1.8
2009/2008       -3.1          0.8       -13.7         -5.0
2010/2009        1.3          0.4         3.5          2.3
2011/2010       -1.0         -0.1        -2.9         -0.6
201212011        1.1          2.7        -0.1          0.9
201312012        1.4         -0.4         3.2          1.4
201412013        1.2         -1.4         7.2          1.4
201512014        1.8         -1.2         6.3          1.8
201612015        2.3         -2.2         5.5          1.9
201712016        2.6         -3.0         5.0          1.8

Decomposition

2007             1.8           0.1         1.3         0.4
2008            -1.0           0.4        -0.8        -0.4
2009            -2.0           0.2        -2.3        -1.0
2010             0.9           0.1         0.5         0.9
2011            -0.6           0.0        -0.4         0.4
2012             0.7           0.6         0.0        -0.3
2013             0.9          -0.1         0.5         0.2
2014             0.8          -0.3         1.1        -0.1
2015             1.2          -0.3         1.0         0.0
2016             1.5          -0.5         0.9         0.0
2017             1.6          -0.6         0.8         0.0

                                      Total
                          Total       final
             Domestic    exports    expendi-
              demand       (c)        ture

2007          1523.7      435.0      1959.4
2008          1496.7      440.3      1936.8
2009          1422.5      404.2      1826.6
2010          1455.7      429.9      1885.7
2011          1446.5      449.6      1896.1
2012          1460.2      446.7      1906.9
2013          1481.3      450.1      1931.4
2014          1502.7      476.4      1979.1
2015          1530.4      509.8      2040.2
2016          1558.9      547.7      2106.6
2017          1587.4      582.3      2169.7

Percentage changes

2007/2006      -2.5        2.3
2008/2007       1.2       -1.2
2009/2008      -8.2       -5.7
2010/2009       6.4        3.2
2011/2010       4.6        0.6
201212011      -0.6        0.6
201312012       0.8        1.3
201412013       5.9        2.5
201512014       7.0        3.1
201612015       7.4        3.3
201712016       6.3        3.0

Decomposition GDP (d)

2007             3.8        -0.8        3.2
2008            -1.8         0.4       -1.5
2009            -5.1        -2.5       -7.5
2010             2.4         1.8        4.2
2011            -0.6         1.4        0.7
2012             1.0        -0.2        0.8
2013             1.5         0.2        1.7
2014             1.5         1.8        3.3
2015             1.9         2.3        4.2
2016             1.9         1.5        4.4
2017             1.8         2.3        4.1

              Total       Net        GDP
             imports     trade        at
               (c)                  market
                                    prices

2007          486.1      -51.1      1474.2
2008          477.4      -37.2      1459.9
2009          424.8      -20.6      1401.9
2010          458.6      -28.7      1427.1
2011          460.9      -11.3      1440.2
2012          471.2      -24.5      1439.8
2013          485.1      -35.0      1449.9
2014          510.5      -34.1      1472.2
2015          541.1      -31.4      1502.6
2016          572.7      -25.0      1537.6
2017          600.0      -17.7      1573.3

Percentage changes

2007/2006      -1.7                   3.6
2008/2007      -1.8                  -1.0
2009/2008     -11.0                  -4.0
2010/2009       8.0                   1.8
2011/2010       0.5                   0.9
201212011       2.2                   0.0
201312012       2.9                   0.7
201412013       5.2                   1.5
201512014       6.0                   2.1
201612015       5.8                   2.3
201712016       4.8                   2.3

Decomposition GDP (d)

2007             0.6       -0.2        3.6
2008             0.6        0.9       -1.0
2009             3.6        1.1       -4.0
2010            -2.4       -0.6        1.8
2011            -0.2        1.2        0.9
2012            -0.7       -0.9        0.0
2013            -1.0       -0.7        0.7
2014            -1.8        0.1        1.5
2015            -2.1        0.2        2.1
2016            -2.1        0.4        2.3
2017            -1.8        0.5        2.3

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

                 billion [pounds sterling],
                      2009 prices (b)

2007            251.7      359.6      -107.9
2008            255.2      352.5       -97.2
2009            228.1      311.0       -82.8
2010            250.2      345.8       -95.6
2011            264.3      348.7       -84.5
2012            267.6      356.9       -89.3
2013            269.2      369.6      -100.4
2014            285.7      389.3      -103.6
1015            306.8      413.2      -106.4
2016            330.3      437.8      -107.5
2017            351.0      458.8      -107.8

Percentage changes

2007/2006        -9.2       -3.3
2008/2007         1.4       -2.0
2009/2008       -10.6      -11.8
2010/2009         9.7       11.2
2011/2010         5.6        0.9
201212011         1.2        2.3
201312012         0.6        3.5
201412013         6.2        5.3
201512014         7.4        6.1
201612015         7.7        5.9
201712016         6.3        4.8

                billion [pounds sterling],
                       2009 prices (b)

              Exports    Imports      Net
                of          of      trade in
             services    services   services

             prices(b)

2007            183.2       126.3       56.8
2008            184.8       124.8       60.0
2009            176.0       113.8       62.2
2010            179.8       112.8       66.9
2011            185.3       112.2       73.2
2012            179.1       114.3       64.8
2013            180.9       115.5       65.4
2014            190.7       121.2       69.5
1015            203.0       127.9       75.0
2016            217.4       134.9       82.5
2017            231.3       141.2       90.1

Percentage changes

2007/2006          8.9        3.3
2008/2007          0.9       -1.2
2009/2008         -4.8       -8.8
2010/2009          2.1       -0.8
2011/2010          3.1       -0.6
201212011         -3.3        1.9
201312012          1.0        1.1
201412013          5.4        4.9
201512014          6.4        5.6
201612015          7.1        5.4
201712016          6.4        4.7

                Export        World       Terms     Current
                price         trade      of trade   balance
             competitive-      (d)         (e)
               ness (c)
                           2009 = 100               % of GDP

2007            110.6          109.4        101.7      -2.3
2008            107.3          112.1        100.7      -1.0
2009            100.0          100.0        100.0      -1.3
2010            102.8          110.5         99.7      -2.5
2011            107.8          116.5         97.8      -1.3
2012            110.9          120.3         98.3      -3.3
2013            110.0          124.7         98.3      -2.1
2014            107.1          130.9         98.9      -1.4
1015            105.9          137.5         99.8      -1.2
2016            105.4          144.8        100.0      -1.2
2017            105.1          152.1        100.1      -0.8

Percentage changes

2007/2006         3.1            7.7          0.0
2008/2007        -3.0            2.4         -1.0
2009/2008        -6.8          -10.8         -0.7
2010/2009         2.8           10.5         -0.3
2011/2010         4.9            5.4         -1.9
201212011         2.8            3.3          0.5
201312012        -0.8            3.7          0.0
201412013        -2.7            4.9          0.6
201512014        -1.1            5.1          0.9
201612015        -0.5            5.3          0.3
201712016        -0.3            5.1          0.1

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

             2009 = 100            billion, [pounds sterling]
                                        current prices

2007             95.8          753.9        1171.1        872.4
2008             97.3          771.2        1214.2        904.6
2009            100.0          777.6        1232.8        933.6
2010            102.8          796.4        1276.7        972.5
2011            104.8          815.6        1319.7       1006.1
2012            107.6          841.1        1371.2       1053.7
2013            109.6          858.5        1420.4       1084.8
2014            112.6          887.0        1475.9       1121.4
2015            115.7          923.4        1540.8       1166.9
2016            119.1          962.3        1611.2       1217.3
2017            123.0         1002.2        1687.6       1272.9

Percentage changes

2007/2006       5.1           5.6           4.2          3.3
2008/2007       1.5           2.3           3.7          3.7
2009/2008       2.8           0.8           1.5          3.2
2010/2009       2.8           2.4           3.6          4.2
2011/2010       2.0           2.4           3.4          3.5
1012/2011       2.7           3.1           3.9          4.7
2013/2012       1.8           2.1           3.6          3.0
2014/2013       2.7           3.3           3.9          3.4
2014/2014       2.7           4.1           4.4          4.1
2016/2015       3.0           4.2           4.6          4.3
1017/2016       3.3           4.2           4.7          4.6

                Real       Final consumption
             disposable    expenditure
             income (b)      Total       Durable

             billion, [pounds sterling] 2009 prices

2007             915.2        940.0        87.6
2008             917.4        924.9        88.3
2009             933.6        896.3        89.4
2010             938.2        908.3        89.3
2011             928.7        899.3        86.4
2012             947.4        909.0        94.8
2013             956.1        921.8        95.5
2014             970.0        933.1        95.7
2015             990.6        950.3        97.6
2016            1014.4        972.3        99.9
2017            1040.1        997.6       102.3

Percentage changes

2007/2006        0.7           2.7         7.5
2008/2007        0.2          -1.6         0.8
2009/2008        1.8          -3.1         1.2
2010/2009        0.5           1.3         0.0
2011/2010       -1.0          -1.0        -3.3
1012/2011        2.0           1.1         9.7
2013/2012        0.9           1.4         0.7
2014/2013        1.5           1.2         0.3
2014/2014        2.1           1.8         2.0
2016/2015        2.4           2.3         2.3
1017/2016        2.5           2.6         2.4

              Saving        House
             ratio (c)   prices (d)       Net
                                        worth to
                                         income
             per cent    2009 = 100    ratio (e)

2007            1.7         109.5         7.2
2008            2.2         108.5         6.2
2009            6.6         100.0         6.5
2010            6.6         107.2         6.7
2011            6.6         106.2         6.5
2012            7.3         108.3         6.6
2013            6.7         108.9         6.4
2014            7.0         105.1         6.1
2015            7.4         103.3         5.9
2016            7.5         103.5         5.7
2017            7.5         105.2         5.7

Percentage changes

2007/2006       10.9
2008/2007       -0.9
2009/2008       -7.8
2010/2009        7.2
2011/2010       -1.0
1012/2011        1.9
2013/2012        0.6
2014/2013       -3.5
2014/2014       -1.7
2016/2015        0.2
1017/2016        1.7

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) Department for Communities and Local
Government, mix-adjusted. (e) Net worth is defined as housing wealth
plus net financial assets.

Table A6. Fixed investment and capital

billion [pounds sterling], 2009 prices

                         Gross fixed investment

              Business      Private      General     Total
             investment   housing (a)   government

2007           134.7         88.7          30.2      253.6
2008           134.4         71.0          36.5      241.8
2009           115.0         51.9          41.8      208.7
2010           114.5         59.0          42.5      216.0
2011           118.1         60.4          31.3      209.8
2012           123.6         54.9          31.1      209.7
2013           131.3         53.7          31.3      216.4
2014           139.1         59.9          32.8      231.9
2015           147.0         67.4          31.9      246.4
2016           153.4         75.4          31.1      260.0
2017           158.2         83.3          31.3      272.9

Percentage changes

2007/2006      10.9           4.7          6.8        8.2
2008/2007      -0.2         -20.0         20.7       -4.6
2009/2008     -14.4         -26.9         14.7      -13.7
2010/2009      -0.4          13.8          1.6        3.5
2011/2010       3.1           2.3        -26.3       -2.9
2012/2011       4.7          -9.1         -0.6       -0.1
2013/2012       6.2          -2.1          0.7        3.2
2014/2013       5.9          11.5          4.7        7.2
2015/2014       5.7          12.5         -2.8        6.3
2016/2015       4.4          11.9         -2.5        5.5
2017/2016       3.1          10.4          0.7        5.0

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

2007           16.6        25.4      2420.0     619.0
2008           16.4        25.7      2494.0     636.0
2009           17.4        25.3      2526.0     656.0
2010           14.9        24.8      2548.5     675.8
2011           14.7        24.6      2572.1     683.8
2012           14.6        23.5      2592.6     691.5
2013           14.6        23.9      2616.9     699.0
2014           14.7        24.1      2652.4     707.8
2015           15.0        24.4      2700.0     715.4
2016           15.3        24.7      2758.1     722.0
2017           15.5        24.9      2824.5     728.5

Percentage changes

2007/2006                              3.6       2.5
2008/2007                              3.1       2.7
2009/2008                              1.3       3.1
2010/2009                              0.9       3.0
2011/2010                              0.9       1.2
2012/2011                              0.8       1.1
2013/2012                              0.9       1.1
2014/2013                              1.4       1.3
2015/2014                              1.8       1.1
2016/2015                              2.2       0.9
2017/2016                              2.4       0.9

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

2007           25212      29228       1654        30882        37916
2008           25408      29440       1783        31223        38090
2009           24924      28960       2390        31350        38236
2010           24837      29019       2476        31494        38481
2011           24940      29166       2564        31729        38725
2012           25045      29502       2546        32048        38981
2013           25105      29653       2601        32254        39242
2014           25256      29854       2587        32441        39505
2015           25590      30237       2399        32636        39760
2016           25895      30583       2242        32824        40066
2017           26111      30835       1162        32997        40348

Percentage changes

2007/2006       0.5        0.7        -1.2         0.6          0.6
2008/2007       0.8        0.7         7.8         1.1          0.5
2009/2008      -1.9       -1.6        34.1         0.4          0.4
2010/2009      -0.3        0.2         3.6         0.5          0.6
2011/2010       0.4        0.5         3.6         0.7          0.6
2012/2011       0.4        1.2        -0.7         1.0          0.7
2013/2012       0.2        0.5         2.1         0.6          0.7
2014/2013       0.6        0.7        -0.5         0.6          0.7
2015/2014       1.3        1.3        -7.3         0.6          0.6
2016/2015       1.2        1.1        -6.5         0.6          0.8
2017/2016       0.8        0.8        -3.5         0.5          0.7

                   Productivity            Unemployment, %
                   (2009 = 100)
                                      Claimant    ILO unem-
             Per hour    Manufact-      rate      ployment
                          uring                     rate

2007           102.5       101.3         2.7         5.4
2008           101.2       103.1         2.8         5.7
2009           100.0       100.0         4.6         7.6
2010           101.2       107.0         4.6         7.9
2011           101.8       110.7         4.7         8.1
2012           100.0       107.3         4.9         7.9
2013           100.1       109.4         5.2         8.1
2014           100.7       112.9         5.3         8.0
2015           101.4       116.1         4.7         7.3
2016           102.6       119.2         4.2         6.8
2017           104.1       122.0         3.9         6.6

Percentage changes

2007/2006       2.9         2.8
2008/2007      -1.2         1.7
2009/2008      -1.2        -3.0
2010/2009       1.2         7.0
2011/2010       0.6         3.4
2012/2011      -1.8        -3.0
2013/2012       0.1         1.9
2014/2013       0.6         3.2
2015/2014       0.7         2.9
2016/2015       1.2         2.6
2017/2016       1.5         2.4

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

                                  2010-11   2011-12   2012-13   2013-14

Current                            353.7     359.7     363.1     380.1
  receipts: Taxes on
              income               191.7     203.3     204.8     211.4
            Other current
              receipts               4.1       6.5      18.2      19.0
            Total                  549.4     569.4     586.0     610.5
            (as a % of
              GDP)                             0.4                 1.

Current                            336.2     336.5     341.3     347.5
  expenditure: Goods and
                 services          196.4     205.3     217.2     218.8
               Debt
                 interest           45.1      49.0      47.5      50.6
               Other
                 current
                 expenditure        53.4      51.0      52.1      52.5
               Total               631.1     641.7     658.2     669.3
               (as a % of GDP)      42.6      42.1      42.4      41.9

Depreciation                        20.7      21.6      22.4      23.1

Surplus on public sector
  current budget (a)              -102.4     -93.9     -94.5     -82.0
(as a % of GDP)                     -6.9      -6.2      -6.1      -5.1

Gross investment                    57.4      46.5      18.0      50.9
Net investment                      36.7      24.9      -4.4      27.8
(as a % of GDP)                      2.5       1.6      -0.3       1.7

Total managed expenditure          688.5     688.2     676.1     720.3
(as a % of GDP)                     46.5      45.2      43.5      45.1

Public sector net borrowing        139.1     118.7      90.1     109.8
(as a % of GDP)                      9.4       7.8       5.8       6.9

Financial transactions             -23.5     -30.1     -24.0      -3.0
Public sector net cash
  requirement                      162.6     148.8     114.1     112.8
(as a % of GDP)                     11.0       9.8       7.3       7.1
Public sector net debt
  (% of GDP)                        60.4      67.0      77.0      81.0

GDP deflator at market prices
  (2008=100)                       103.5     105.7     107.7     109.8
Money GDP                         1481.9    1523.0    1552.4    1596.6

Financial balance under
  Maastricht (% of GDP) (b)        -10.2      -7.8      -6.8      -6.3
Gross debt under Maastricht
  (% of GDP) (b)                    79.4      85.3      89.7      93.8

                                 2014-15   2015-16   2016-17   2017-18

Current                            399.1     420.2     443.3     466.4
  receipts: Taxes on
              income               218.3     226.8     236.8     247.9
            Other current
              receipts              18.3      17.0      17.0      11.8
            Total                  635.7     664.1     697.1     726.1
            (as a % of
              GDP)                            &t.       IV.       IV.

Current                            350.2     354.9     353.7     351.2
  expenditure: Goods and
                 services          223.7     229.9     238.2     248.1
               Debt
                 interest           52.3      54.3      56.0      57.3
               Other
                 current
                 expenditure        53.9      55.5      57.3      59.1
               Total               680.2     694.6     705.2     715.7
               (as a % of GDP)      41.0      40.1      39.0      37.9

Depreciation                        23.9      24.7      25.5      26.3

Surplus on public sector
  current budget (a)               -68.4     -55.2     -33.6     -16.0
(as a % of GDP)                     -4.1      -3.2      -1.9      -0.9

Gross investment                    51.5      49.7      49.0      49.7
Net investment                      27.6      25.0      23.5      23.3
(as a % of GDP)                      1.7       1.4       1.3       1.2

Total managed expenditure          731.7     744.2     754.2     765.4
(as a % of GDP)                     44.1      43.0      41.7      40.6

Public sector net borrowing         96.0      80.2      57.1      39.3
(as a % of GDP)                      5.8       4.6       3.2       2.1

Financial transactions             -10.0      -9.0     -19.0     -16.0
Public sector net cash
  requirement                      106.0      89.2      76.1      55.3
(as a % of GDP)                      6.4       5.2       4.2       2.9
Public sector net debt
  (% of GDP)                        83.5      84.6      84.8      83.8

GDP deflator at market prices
  (2008=100)                       112.2     114.6     116.9     119.2
Money GDP                         1659.9    1732.2    1807.5    1886.4

Financial balance under
  Maastricht (% of GDP) (b)         -5.8      -4.6      -3.2      -2.0
Gross debt under Maastricht
  (% of GDP) (b)                    95.9      96.4      95.4      93.2

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. Data includes the impact of the
transfer of the Royal Mail pension scheme in April 2012. Public sector
net borrowing in 2012-13 excluding this effect is 28 billion
[pounds sterling] higher at 118.1 billion [pounds sterling]
(7.6 per cent of GDP). (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

2007     1.1       6.2      15.2     10.5      -0.3       1.7
2008     1.4       4.6      16.2     10.2      -1.5       2.2
2009     4.6       3.2      14.7      8.4      -6.4       2.6
2010     4.5       3.9      14.5      8.8      -6.5       2.4
2011     4.5       3.9      14.2      9.0      -5.3       2.0
2012     5.2       3.7      11.9      8.9      -5.8       2.0
2013     4.7       3.8      12.1      9.5      -4.0       1.7
2014     5.0       4.2      12.7      9.7      -3.6       1.6
2015     5.2       4.6      12.1      9.8      -2.6       1.4
2016     5.3       5.0      11.0      9.9      -1.4       1.3
2017     5.3       5.4      10.4      9.8      -0.3       1.1

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

2007     16.0     18.3      2.3       -1.4        5.1
2008     16.1     17.1      1.0       -2.3        5.6
2009     12.8     14.1      1.3       -1.3        2.0
2010     12.6     15.1      2.5       -1.0        1.9
2011     13.5     14.8      1.3       -1.7        2.9
2012     11.2     14.5      3.3       -0.6        0.6
2013     12.9     15.0      2.1       -2.3        2.2
2014     14.1     15.5      1.4       -2.7        3.5
2015     14.7     15.9      1.2       -2.3        4.1
2016     14.9     16.1      1.2       -1.7        4.2
2017     15.5     16.3      0.8       -1.6        4.9

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

                                 2009    2010    2011    2012    2013

GDP (market prices)             -4.0     1.8     0.9     0.0     0.7
Average earnings                 2.8     2.8     2.0     2.7     1.8
GDP deflator (market prices)     1.3     2.8     2.5     1.8     1.9
Consumer Prices Index            2.2     3.3     4.5     2.8     2.4
Per capita GDP                  -4.6     1.0     0.3    -0.8     0.0
Whole economy productivity
  (a)                           -1.2     1.2     0.6    -1.8     0.1
Labour input (b)                -2.9     0.5     0.4     1.9     0.5
ILO unemployment rate (%)        7.6     7.9     8.1     7.9     8.1
Current account (% of GDP)      -1.3    -2.5    -1.3    -3.3    -2.1
Total managed expenditure
  (% of GDP)                    47.2    46.9    45.3    43.6    45.3
Public sector net borrowing
  (% of GDP)                    10.8    10.0     7.9     6.5     6.6
Public sector net debt
  (% of GDP)                    48.4    56.4    63.3    68.7    78.7
Effective exchange rate
(2005 = 100)                    81.2    81.0    81.1    84.6    84.8
Bank Rate (%)                    0.6     0.5     0.5     0.5     0.5
3 month interest rates (%)       1.2     0.7     0.9     0.9     0.6
10 year interest rates (%)       3.7     3.6     3.1     1.8     2.2

                                2014    2015    2016    2017    2018-22

GDP (market prices)              1.5     2.1     2.3     2.3      2.5
Average earnings                 2.7     2.7     3.0     3.3      3.5
GDP deflator (market prices)     2.1     2.2     2.0     2.0      2.0
Consumer Prices Index            2.3     2.2     1.8     1.9      1.9
Per capita GDP                   0.8     1.4     1.5     1.6      1.8
Whole economy productivity
  (a)                            0.6     0.7     1.2     1.5      2.0
Labour input (b)                 0.9     1.4     1.1     0.8      0.4
ILO unemployment rate (%)        8.0     7.3     6.8     6.6      6.5
Current account (% of GDP)      -1.4    -1.2    -1.2    -0.8     -1.7
Total managed expenditure
  (% of GDP)                    44.4    43.3    42.1    40.8     39.4
Public sector net borrowing
  (% of GDP)                     6.1     4.9     3.6     2.3      1.0
Public sector net debt
  (% of GDP)                    82.1    84.0    84.8    84.5     77.8
Effective exchange rate
(2005 = 100)                    85.1    85.5    85.9    86.3     86.9
Bank Rate (%)                    0.5     0.9     1.4     2.0      3.6
3 month interest rates (%)       0.7     1.0     1.6     2.2      3.8
10 year interest rates (%)       2.7     3.1     3.5     3.7      4.2

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

ACKNOWLEDGEMENTS

The forecast was completed using the latest version of the National
Institute Econometric Model (NiGEM). Thanks to Katerina Lisenkova for
research assistance and to Dawn Holland for helpful comments and
suggestions. Unless otherwise stated, the source of all data reported in
the figures and tables is the NiGEM database and
NIESR
 
 forecast

baseline

.

The UK forecast was completed on 25 January, 2012.

REFERENCES

Barrell, R. (200% ‘Long-term
scarring
  
n.
1. A mark left on the skin after a surface injury or wound has healed.

2. A lingering sign of damage or injury, either mental or physical:
 from the financial
crisis’, National Institute Economic Review, 210, pp. 36-8.

Crafts, N. (2012), ‘Industrial policy: past, present and
future’, Chalk + Talk seminar at the Social Market Foundation,
London, 29 November.

NOTES

(1) Advance ticket sales were concentrated in the second quarter of
201 I but allocated to the third quarter of 2012 as the ONS book the
‘consumption’ of events when the event is held rather than
purchased.

(2) However, the increase in tuition fees will be a factor in the
decision of potential students on whether to invest in higher education.

(3) The
Northern Ireland
 see Ireland, Northern.


Northern Ireland

Part of the United Kingdom of Great Britain and Northern Ireland occupying the northeastern portion of the island of Ireland. Area: 5,461 sq mi (14,144 sq km). Population (2001): 1,685,267.
 and Scottish administrations have yet to
release their revised estimates.

(4) This is of importance since depreciation accounts for around 10
per cent of money GDP. A drop in national investment to below this
figure would suggest that the capital stock was in the process of being
run down.

Table I. Summary of the forecast

Percentage change

                               2009    2010    2011    2012    2013

GDP                            -4.0     1.8     0.9     0.0     0.7
Per capita GDP                 -4.6     1.0     0.3    -0.8     0.0

CPI Inflation                   2.2     3.3     4.5     2.8     2.4
RPIX Inflation                  2.0     4.8     5.3     3.2     2.9

RPDI                            1.8     0.5    -1.0     2.0     0.9
Unemployment, %                 7.6     7.9     8.1     7.9     8.1
Bank Rate, %                    0.6     0.5     0.5     0.5     0.5
Long Rates, %                   3.7     3.6     3.1     1.8     2.2
Effective exchange rate        -10.5   -0.2     0.0     4.4     0.2

Current account as % of GDP    -1.3    -2.5    -1.3    -3.3    -2.1

PSNB as % of GDP (a, b)        10.9     9.4     7.8     5.8     6.9
PSND as % of GDP (a)           53.3    60.4    67.0    77.0    81.0

                               2014    2015    2016    2017

GDP                             1.5     2.1     2.3     2.3
Per capita GDP                  0.8     1.4     1.5     1.6

CPI Inflation                   2.3     2.2     1.8     1.9
RPIX Inflation                  2.7     2.7     2.4     2.6

RPDI                            1.5     2.1     2.4     2.5
Unemployment, %                 8.0     7.3     6.8     6.6
Bank Rate, %                    0.5     0.9     1.4     2.0
Long Rates, %                   2.7     3.1     3.5     3.7
Effective exchange rate         0.3     0.5     0.5     0.4

Current account as % of GDP    -1.4    -1.2    -1.2    -0.8

PSNB as % of GDP (a, b)         5.8     4.6     3.2     2.1
PSND as % of GDP (a)           83.5    84.6    84.8    83.8

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.
Includes the impact of the transfer of assets and liabilities from
the Royal Mail pension scheme in April 2012. (b) PSNB excluding the
royal Mail pension transfer is 118.1 billion [pounds sterling]
(7.6 per cent of GDP) in 2012-13.

Table 2. The effect of APF flows on the fiscal forecast

                              2010-11    2011-12    2012-13    2013-14

Surplus on the current budget of GDP)
Excluding APF flows             -6.9       -6.2       -6.8       -5.9
Including APF flows             -6.9       -6.2       -6.1       -5.1

Public sector net borrowing (a  GDP)
Excluding APF flows             9.4        7.8        6.5        7.7
Including APF flows             9.4        7.8        5.8        6.9

Public sector net debt (as a per cent of GDP)
Excluding APF flows             60.4       67.0       77.8       82.5
Including APF flows             60.4       67.0       77.0       81.0

                              2014-15    2015-16    2016-17    2017-18

Surplus on the current budget (as a per cent
Excluding APF flows             -4.8       -3.7       -2.3       -0.9
Including APF flows             -4.1       -3.2       -1.9       -0.9

Public sector net borrowing (as a per cent of
Excluding APF flows             6.5        5.1        3.6        2.1
Including APF flows             5.8        4.6        3.2        2.1

Public sector net debt (as a per cent of GDP)
Excluding APF flows             85.6       87.1       87.6       86.5
Including APF flows             83.5       84.6       84.8       83.8

Source: NIESR database and forecast.

Note: APF is Asset Purchase Facility.