The Saturday Economist, ten predictions for the UK economy in 2014. The outlook for the UK economy explained, forecasts from the Professor and his team

1. The Saturday Economist.com
with Professor Milton Keynes
Ten Predictions for 2014
Saturday, 11 January 14

2. World Trade
World Trade Growth
20
15
10
Forecast
5
0
-5
-10
-15
-20
Data Source
World trade growth is
expected to recover from an
average 2.8% in 2013 to a trend
rate of growth of around 5%
over the next two years.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
The Saturday Economist.com
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Saturday, 11 January 14

3. The Saturday Economist.com
UK Growth
GDP
UK GDP growth for 2013 will be
revised up to 2% in the year.
4.0
3.0
We expect growth of 2.5% in 2014
rising to 2.7% in the following year.
3.6
3.6
2.6
2.5
2.0
1.6
1.0
2.7
2.0
1.2
0.3
0
-1.0
-0.6
-2.0
-3.0
-4.0
-5.0
-6.0
-5.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Predictions for 2014
Saturday, 11 January 14

4. The Saturday Economist.com
Inflation CPI basis will end the year 2013
around 2.1% in the final quarter of the year.
We expect inflation to average 2.3% in 2014
rising to 2.4% in the following year.
Inflation CPI
Inflation CPI
5.0
4.5
4.0
3.6
3.3
3.0
2.8
2.3
2.0
2.0
2.4
2.2
2.6
2.3
2.4
1.0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Predictions for 2014
Saturday, 11 January 14

5. The Saturday Economist.com
Unemployment
Claimant Count
We expect the strong
growth in the labour
market to continue
with claimant count
falling to 1.2 million (avg)
a rate of 3.8% in 2014.
In the following year, the
claimant count could fall
below 1 million by the end
of the final quarter
pushing
the unemployment rate to
3.3%.
1,600.0
1,529.1
1,497.1
1,533.0
1,585.0
1,424.0
1,400.0
1,193.0
1,200.0
1,062.0
1,000.0
944.7
863.3
862.1
906.0
800.0
600.0
400.0
2.9%
3.2%
2.9%
3.0%
5.0%
4.9%
5.0%
5.1%
4.5%
3.8%
3.3%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
200.0
0
Predictions for 2014
Saturday, 11 January 14

6. The Saturday Economist.com
LFS Rate 000
The unemployment rate
LFS basis is expected to 3,000.0
average 7.4% in 2014,
falling to 7.1% in 2015
compared to 7.7% in 2013. 2,500.0
The level of
unemployment
LFS basis will average 2.4
million in 2015 and just
over 2.3 million in 2015.
2,390
2,000.0
1,674 1,654
1,500.0
Unemployment
2,476
2,564 2,548
2,487
2,407
2,339
1,783
1,467
1,000.0
In this basis we see no
need for the MPC to
adjust the Forward
Guidance parameters in
the short term.
4.9%
5.5%
5.4%
5.7%
7.6%
7.9%
8.1%
7.9%
7.7%
7.4%
7.1%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
500.0
0
Predictions for 2014
Saturday, 11 January 14

7. The Saturday Economist.com
Average Earnings
Average Earnings
The strength in the labour market,
particularly the short claimant count
measure, will lead to a significant surge
in pay settlements and earnings in 2014.
5.0
4.0
4.6
4.7
4.9
3.6
3.2
We expect earnings to increase by 2.5%
in 2014 rising to 3.2% in 2015.
3.0
2.5
2.4
2.0
1.7
1.5
1.4
1.1
1.0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Predictions for 2014
Saturday, 11 January 14

8. The Saturday Economist
Trade in Goods
Imports - trade in goods
we model at trend rate of
3% over the next fifteen
months
Exports we model as a
function of world trade and
relative price changes
The residual deficit
represents the structural
and trend deterioration in
the trade in goods deficit.
with Professor Milton Keynes ...........
Saturday, 11 January 14
The Saturday Economist .com

9. The Saturday Economist.com
Balance of Payments
We expect the structural deficit, trade in goods
to continue, offset by the trade in services surplus.
The overall impact, goods and services deficit
represents an overall deficit around -2% of GDP.
Trade in Services
80,000
60,000
40,000
Trade in Goods
20,000
0
0
-20,000
2005
2007
2009
2011
2013
2015
Trade in Goods & Services
-40,000
0
-60,000
-10,000
-80,000
-20,000
-100,000
-30,000
-120,000
-40,000
-140,000
-50,000
2005
2007
2009
2011
2013
2015
2005
2007
2009
2011
2013
2015
Predictions for 2014
Saturday, 11 January 14

10. The Saturday Economist.com
We expect the rate of borrowing to fall
significantly as the economy recovers.
Our bench line forecasts are taken from
the office of budget responsibility with
slight amends as a result of higher GDP
estimates.
Government £
Government Borrowing £m
200,000
157,293
150,000
139,421
117,968 114,934
The government is on track to eliminate
the deficit within five years assuming the
trend rate of growth of GDP can be
maintained.
102,500
99,355
100,000
88,000
70,000
50,000
37,951
2.7%
0
7.0%
2007/8
2008/9
11.2%
9.3%
7.6%
7.3%
6.2%
5.1%
3.9%
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
OBR
Predictions for 2014
Saturday, 11 January 14

11. The Saturday Economist.com
The recent sterling strength against the
dollar and the euro is expected to
continue over the next two years.
We see the dollar rate challenging the
1.75 level over the period and
challenging the 1.28 level against the euro.
Sterling
Dollar
Euro
2.00
2.00
1.85
1.82 1.84
1.80
1.72
1.57 1.55
1.60
1.60 1.59
1.56
1.65
1.46 1.47 1.46
1.40
1.26
1.20
1.23
1.12
1.17 1.15
1.24
1.29
1.18
1.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Data sets represent annual averages
Predictions for 2014
Saturday, 11 January 14

12. The Saturday Economist.com
Gilt Rates
Gilt Yields
Ten year gilt yields opened the year 2014 at
just over 3%. We expect the yield curve
to return to fair value over the next two
years with 10 year rates returning to a
normalised 4.5% by the end of the forecast
period.
6.0
5.0
5.0
4.4
4.0
3.0
2.0
4.5
4.6
4.5
3.6
3.6
3.3
3.1
2.5
1.9
1.0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Predictions for 2014
Saturday, 11 January 14

13. The Saturday Economist.com
Base Rates
Base Rates
Base rates averaged 4.8% in the four years
prior to recession.
6.0
5.0
The period of low base rates is expected to
continue for the year 2014 with a rise in rates
expected from the middle of 2015.
5.5
4.6
4.6
4.7
4.0
3.0
We think base rates could end the year 2015
at 1.0%, thereafter rising significantly to fair
value 4.5% within two years.
2.0
1.0
0
0.6
0.5
0.5
0.5
0.5
0.5
0.8
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Predictions for 2014
Saturday, 11 January 14

14. The Saturday Economist.com
with Professor Milton Keynes
© 2014 The Saturday Economist, TheSaturdayEconomist,
by John Ashcroft and Company, Dimensions of Strategy and
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The material is based upon information which we consider to
be reliable but we do not represent that it is accurate or
complete and it should not be relied upon as such. We
accept no liability for errors, or omissions of opinion or fact.
In particular, no reliance should be placed on the comments
on trends in financial markets. The content within this
presentation should not be construed as the giving of
investment advice.
Ten Predictions for 2014
Saturday, 11 January 14