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Economic Overview

Economic Overview. 1 July, 2010. Jarlath Costello Economic Advice Division Welsh Assembly Government. Structure of Presentation. Output Labour Market Fiscal Position. Output. Output Lost Over Recession (Peak to Trough). Source: OECD. UK GDP Growth (Change Over Prior Quarter).

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Economic Overview

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  1. Economic Overview 1 July, 2010 Jarlath Costello Economic Advice Division Welsh Assembly Government

  2. Structure of Presentation • Output • Labour Market • Fiscal Position

  3. Output

  4. Output Lost Over Recession(Peak to Trough) Source: OECD

  5. UK GDP Growth (Change Over Prior Quarter) Source: ONS

  6. GDP 1st Year of Recovery(Last Qtr Recession = 100) Source: ONS

  7. “The recovery is likely to gather pace over the next year, underpinned by the considerable stimulus stemming from the highly accommodative monetary stance, together with a projected further expansion of world demand and the past depreciation of sterling. But the pace of that recovery will be dampened by the fiscal consolidation and the need for UK banks to continue to repair their balance sheets” Opening Remarks By Governor of Bank of England to Inflation Report Press Conference, 12 May 2010

  8. Bank of England GDP Forecast(Year Over Year % Change) Source: Bank of England

  9. OBR GDP Forecast(Year Over Year % Change) Source: Office for Budget Responsibility

  10. Index of Production(2005 = 100) Source: ONS

  11. Index of Construction(2005 = 100) Source: ONS

  12. Index of Market Services(2005 = 100) Source: ONS

  13. Labour Market

  14. Impact of Recession on Labour Market Note: the table shows LFS changes between February – April 2008, the last quarter before recession and February – April 2010. The claimant count data show changes in unemployment between February 2008 and May 2010 Source: ONS

  15. Labour Market Current Status Source: ONS

  16. Monthly Percentage Increase in Claims for Job Seekers Allowance 2008 2009 2010 Source: ONS

  17. Impact of Recession on UK Employment (1)(Gender, Full Time/Part, Time Change in Thousands) Note: the table shows LFS changes between January – March 2008, the last quarter before recession and February – April 2010. Source: ONS

  18. Impact of Recession on UK Employment (2)(Private Sector/Public Sector, Change in Thousands) But RBS, Lloyds etc has inflated this Note: the table shows LFS changes between January – March 2008 and January – March 2010, the latest date of available data. Source: ONS

  19. Impact of Recession on UK Inactivity(By Age Group, Change in Thousands) Note: the table shows LFS changes between January – March 2008, the last quarter before recession and February – April 2010. Source: ONS

  20. UK Duration of Unemployment(Thousands) 2,482 2,449 2,467 2,472 2,280 2, 280 1,873 1,713 1,655 Source: ONS

  21. Public Finances

  22. UK GDP Level In Cash Terms(£ Bils) OBR June 2010 Assumptions Source: HM Treasury, Office for Budget Responsibility

  23. Government Finances(For Fiscal Year 2009/10,£ Bils) Source: HM Treasury

  24. Government Finances(For Fiscal Year 2009/10,% GDP) Source: HM Treasury

  25. Budget 2010 Fiscal policy will be guided by a new fiscal mandate which aims to achieve: “cyclically adjusted current balance by the end of the rolling five-year forecast period” Additionally: “The fiscal mandate will be supplemented by a target for public sector net debt as a percentage of GDP to be falling at a fixed date of 2015-16” In another notable change: “fiscal policy decisions will be based on independent forecasts for the economy and public finances prepared by the Office For Budget Responsibility” HM Treasury, Budget 2010

  26. Public Sector Finances(% GDP) HMT/OBR Forecasts Source: HM Treasury, Office for Budget Responsibility

  27. Total Budget Deficit Current and Net Investment Components (% GDP) 11% 10.1% 7.5% 6.7% 5.5% 3.5% 2.1% 1.1% Source: HM Treasury, Office for Budget Responsibility

  28. Current Budget Deficit Structural and Cyclical Elements (% GDP) 7.5% 7.5% 5.7% 4.0% 3.5% 2.3% 0.9% 0% Source: HM Treasury, Office for Budget Responsibility

  29. Fiscal Consolidation(2010/11 – 2015/16) Source: HM Treasury, Budget 2010

  30. Current ExpenditureResource Departmental Expenditure Limits(£ bils) Cash Resource DEL Source: HM Treasury, Office for Budget Responsibility

  31. Capital ExpenditureCapital Departmental Expenditure Limits(£ bils) Cash Capital DEL Source: ONS

  32. Government Net Debt Source: HM Treasury, Office for Budget Responsibility

  33. June & March Budgets Compared

  34. Summary • Economy is emerging slowly from recession. Consensus view is that momentum will improve and a ‘double dip’ recession will be avoided. • However, the outlook is very uncertain. High probability that growth could be stronger or weaker than central scenarios presented by Bank of England and Office for Budget Responsibility. • Recession has extracted a high price from the labour market, but it could have been a lot worse. • Labour market outcomes suggest Wales may have had a slightly deeper recession than the UK. Recent trends in claims for Job Seekers Allowance suggest the labour market here is stabilising and perhaps improving modestly - similar to the UK. • The Coalition Government has announced an unprecedented tightening of fiscal policy. The Office for Budget Responsibility believes the economy will grow through the fiscal squeeze with employment projected to increase and unemployment decline from 2011 on.

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