World recovery implications for UK and North West
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John Ashcroft presented an economic forecast for the UK and North West at a pro.manchester event in January 2011. Some key points from his presentation include: - GDP growth in the UK will be stronger than expected in 2011, led by manufacturing and investment. Exports will also see strong growth. - Inflation will remain above the Bank of England's target. Input prices are rising significantly. - The manufacturing sector is leading the economic recovery, though output is still well below pre-recession levels. - Public sector job cuts as part of the Comprehensive Spending Review will be offset by private sector job growth. - Interest rates are expected to start rising in 2011 as inflation remains persistent
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World recovery implications for UK and North West
- 1. pro.manchester Economics Presentation ted y da ar January 2011 Up anu 9t hJ 2 World recovery Implications for the UK and North West John Ashcroft is Chief Executive of pro.manchester is the pro.manchester, a director of Marketing members organisation, Manchester and a visiting professor at MMU representing the financial and Business School specialising in Macro professional services Economics and Corporate Strategy. organisation in Greater Manchester. Educated at the London School of Economics Search for jkaonline and London Business School with a PhD in CEO Econ macro economics from MMU. Blog Blog
- 2. pro.manchester Economics Presentation January 2011 Soros, The outstanding feature of my predictionsis that I keep on expecting developments that do not materialise. World recovery Implications for the UK and North West John Ashcroft is Chief Executive of pro.manchester is the pro.manchester, a director of Marketing members organisation, Manchester and a visiting professor at MMU representing the financial and Business School specialising in Macro professional services Economics and Corporate Strategy. organisation in Greater Manchester. Educated at the London School of Economics jka online and London Business School with a PhD in CEO Econ macro economics from MMU. Blog Blog
- 3. why manufacturing is leading the recovery. why export growth is so strong. why inflation is so persistent. how the Bank of England model has lost the thread why growth will be higher than expected in 2011 how fast and how soon will interest rates rise Trouble with the TROGS Why the structural deficit is much smaller than realised Data Sources World Data : NIESR, IMF, OECD World Trade Data : Netherlands Bureau for Economic Policy Analysis UK Data : OBR, NIESR, Deloitte, PWC, UK treasury Greater Manchester : Greater Manchester Forecasting Model, ABI, et al
- 4. Summary Points GDP growth will be stronger than expected Inflation will remain above target Manufacturing and investment will lead expansion Exports will enjoy strong growth ……….. but the trade deficit will continue to expand Private sector job growth will offset CSR cuts Government borrowing will fall faster than forecast Interest Rates rates set to rise JKA January 2011
- 5. Challenges Oil price Commodities - especially metals and rare earth metals Challenge to the west - fiscal and external imbalance Differentiation between “The West” The BRICs, PIIGs The MESKITs Currency Tensions Dollar, Euro, Renminbi China - Second largest economy with per capita potential Renminbi - US Dollar $2.85 trillion reserves Parallels with Bank of France and Sterling (30’s) JKA January 2011
- 6. UK Main Forecasts - JKA But the UK will enjoy above trend growth JKA January 2011
- 7. UK GDP Data and Forecast NIESR preliminary estimate 2.7% ONS preliminary estimate 2.2% adjusted for weather shock ONS preliminary estimate 1.7% expect better growth in Q4 and above trend growth in 2011
- 8. UK GDP Data and Forecast NIESR preliminary estimate 2.7% ONS preliminary estimate 2.2% adjusted for weather shock ONS preliminary estimate 1.7% Sectors hit by seasonal adjustments
- 9. UK Consensus Forecasts 2011 OBR 1.8% OBR 3.0% OBR £149 bn OBR 4.0% HM treasury Forecasts for the UK Economy January 2011
- 10. Trouble with the TROGs The Bank of England inflation model is still heavily reliant on a belief in the output gap to bring inflation under control…….. and Bank of England Gapology is a “gonner” January 2011 JKA
- 11. Employment will recover ... Trend rate 0.9%, disrupted by recession 240,000 jobs pa as the claimant count demonstrates but levels are stabilising Growth will absorb any public sector loss JKA January 2011
- 12. PSNBR Borrowing to be brought under control the cyclical swing may be much bigger ratios brought under control JKA January 2011
- 13. Trouble with Inflation RPI’s above target CPI 3.7% Output prices 4.2% RPI 4.8% RPIX 4.7% Input prices 12.5% Input prices lhs : Output prices rhs Service sector inflation averages 3.6% and earnings will recover in 2011 and that’s almost half of the index Latest December 3.9% Services Goods Still above target with the VAT rise to come JKA January 2011
- 14. Trouble with Inflation RPI’s above target CPI 3.7% Output prices 4.2% RPI 4.8% RPIX 4.7% Input prices 12.5% Input prices lhs : Output prices rhs Service sector inflation averages 3.6% and earnings will recover in 2011 and that’s almost half of the index Latest December 3.9% Services Goods Still above target with the VAT rise to come JKA January 2011
- 15. Trouble with Inflation RPI’s above target CPI 3.7% Output prices 4.2% RPI 4.8% RPIX 4.7% Input prices 12.5% 22nd January 2011 Input prices lhs : Output prices rhs Service sector inflation averages 3.6% and earnings will recover in 2011 and that’s almost half of the index Latest December 3.9% Services Goods Still above target with the VAT rise to come JKA January 2011
- 16. Consumers losing faith As confidence slumps JKA January 2011
- 17. Consumers losing faith Biig ticket prospects take a dive JKA January 2011
- 18. Consumers losing faith You’ve never had it so bad Each unhappy economy is unhappy in it’s own way Ever wondered why? JKA January 2011
- 19. Trade in Goods Exports are growing but so are imports the tren dd ecli ne c ont inue s Devaluation is not the answer as the deficit grows.. JKA January 2011
- 20. Retail Sales - December Volumes including fuel in line with 2009 excluding fuel are up by 1% We have been slimming Food is down by 3.4% over the year. Let them eat flake (snow flakes presumably) JKA January 2011
- 21. House Market House prices are easing back ….. and reverting to long term trends but earnings ratios are still extended The house market is inert JKA January 2011
- 22. House Market House prices are easing back ….. and activity is off the screen and reverting to long term trends but earnings ratios are still extended It will take another five years to recover JKA January 2011
- 23. Interest Rates remain on hold LIBOR spreads have stablised Gilt yields are set to rise the inflation premium is 3% and real yields are too low. Base Rates will have to rise in 2011 JKA January 2011
- 24. Bloomberg Yield Curves UK long term yields are at 4.5% JKA January 2011
- 25. Sovereign Debt PIGS can’t fly but rate spreads will JKA January 2011
- 26. Manufacturing - a recovery of sorts Strong recovery…... Average rate 0.7% but still a long way off the top Strong recoveries are not unusual…. rate 0.7% Trend but the trend rate is dominant Like falling off a cliff and waking from a coma JKA January 2011
- 27. Exchange Rates and Real Rates Back to basics JKA January 2011
- 28. World Trade Data World trade the indicator of growth ….. .5% 14 ate yr er ov 140.0 um rec r ann pe e 7% rat nd tre 120.0 ….and the key to UK export expansion 100.0 The model is X (f) WT, REXP, e Data : CPB Netherlands Bureau for Economic Policy Analysis provides the real key to UK export growth JKA January 2011
- 29. Oil Price …... 2005 $51.8 2006 $63.4 2007 $70.5 2008 $95.7 2009 $61.8 2010 $80.0 2011 $88.0 2012 $90.0 2013 $92.0 2014 $95.3 2015 $99.9 The oil price is heading in one direction JKA January 2011
- 30. World Raw Material Prices World Raw Material Prices Excluding Energy Data : CPB Netherlands Bureau for Economic Policy Analysis …. as are raw material prices JKA January 2011
- 31. World Raw Material Prices Commodity Metals Price Index especially commodity metals JKA January 2011
- 32. World Raw Material Prices Copper Aluminium Iron Ore Lead Nickel Tin Uranium Zinc Cotton Rubber Sugar especially commodity metals JKA January 2011
- 33. Chinese Growth perfomance The Chinese “hoover” is out there JKA January 2011
- 34. Rare Earth metals Market Estimates 2014 Demand 190,000 tonnes Supply 150,000 tonnes Rare Earth Metals - a control card for the Middle Kingdom
- 35. Global Food Bill and Prices and food prices present short term pressure JKA January 2011
- 36. Speculative Bubble Map Speculative Bubble Map the classic bubble map JKA January 2011
- 37. Speculative Bubble Map Speculative Bubble Map and Oil 2008 explains the oil rise in 2008 JKA January 2011
- 38. Oil Price and World Trade Oil Price and World Trade 2005 $51.8 2006 $63.4 2007 $70.5 2008 $95.7 2009 $61.8 2010 $80.0 2011 $88.0 world trade overlay 2012 $90.0 2013 $92.0 2014 $95.3 2015 $99.9 ……….now it’s the real deal JKA January 2011
- 39. Oil Price and World Trade Analysis of world oil reserves JKA January 2011
- 40. Business Insolvencies Business Insolvencies - England and Wales Insolvencies Changes in GDP yoy 2010 a co-incident indicator no lags JKA January 2011
- 41. Business Insolvencies by sector Business Insolvencies - England and Wales by Sector 2010 sector trends will dominate despite CSR JKA January 2011
- 42. Personal Insolvencies Personal Insolvencies Total Insolvencies Bankruptcy Orders Debt Relief Orders IVAs IVAs have increased total activity and will create great concern for the Bank JKA January 2011
- 43. CSR Impacts by region Estimate of public and private sector employment loss by 2014/15 Region Total Public Private Percentage of total jobs London 122 62 60 3.1% South East 112 56 56 3.1% Implicit North West 108 62 61 3.7% Greater Manchester Scotland 95 48 47 4.1% Public Private 20,000 18,000 Yorkshire & Humberside 82 42 41 3.7% South West 81 41 40 3.5% West Midlands 80 40 40 3.6% East 74 38 36 3.2% East Midlands 58 29 29 3.2% Wales 52 26 26 4.3% North East 43 22 21 4.1% Northern Ireland 36 18 18 5.2% UK Total 943 475 468 3.4% Original Data Interpolation Interpolation and what of the CSR? JKA January 2011
- 44. CSR Impacts by sector Estimate of private sector employment loss by 2014/15 Sector % sector UK 000 GM ‘000 ” Business Services 3.9% 186 7.5 hi gh o s to Construction 5.1% 104 e em 4.0 “s Manufacturing 2.0% 51 2.0 Transport/Communications 1.9% 47 1.5 Distribution, hotels, catering 0.4% 25 1.0 Financial Services 1.1% 11 0.5 Other Sectors 1.5% 44 1.5 Total Private Sector 2.1% 468 18.0 Interpolation …… and this over four to five years. JKA January 2011
- 45. CSR Impacts by sector Estimate of Output Losses at detailed sub-sector level % Postal and Courier Service Aircraft and other Paper, Paperboard Advertising Services Clothing, Uniforms Medical Instruments TV, Radio h” Pulp, Paper hig o Leather goods, footwear s to Electric Components em “ se Weapons and ammunition Office Machinery, Computers 0 5 10 15 20 25 30 …….. details at sub sector level ? JKA January 2011
- 46. CSR Impacts beneficiaries Will the cuts be effected? Voluntary Redundancy Early Retirement Job Resistance Job Rotation Job Re-titles Private Sector procurement Some Beneficiaries Outsourcing Manpower Service Providers Redundancy, Relocation Providers Professional Services Some Winners JKA January 2011
- 47. Winners and Losers in recovery Losers in 2011 Discretionary retail spend sectors Secondary, tertiary retail Housing related …….. Consumer products, Property, construction, business services Defence, military, aerospace, marine Some losers JKA January 2011
- 48. Winners and Losers in recovery Winners Strong manufacturing recovery over two years Business investment - service sector related Digital Media, Creative (new tech) Convergent technologies, comms and clouds Clean Tech, Green Tech, the Carbon agenda 2013 Energy efficiency, retrofit agenda, Nuclear, Property rental, BTL services Professional services, Outsourcing, call centres, language translation Export exposure especially to BIC. Export exposure “ECBs” ECBs emergent and commodity blessed Retail - FDAT, clothing and e-commerce Some Winners JKA January 2011
- 49. pro.manchester Economics Review : January 2011 The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. for regular updates check out the regular blog posts Google “JKA on economics”, “jkaonline” for details or follow me on twitter or check out the por.manchester CEO blog. Sign up today. John Ashcroft is Chief Executive of pro.manchester is the pro.manchester, a director of Marketing members organisation, Manchester and a visiting professor at MMU representing the financial and Business School specialising in Macro professional services Economics and Corporate Strategy. organisation in Greater Manchester. Educated at the London School of Economics and London Business School with a PhD in CEO Econ macro economics from MMU. Blog Blog
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