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UK economy: six summer budget graphs you need to see Budget 2015: the six graphs you need to see
(about 1 hour later)
1. The recovery is slowing1. The recovery is slowing
The UK’s economic recovery appears to be established, with GDP rising for nine consecutive quarters now and above its pre-crisis peak. But the latest data showed the growth rate halved in the opening months of 2015 to 0.4%, from 0.8% in the final quarter of 2014.The UK’s economic recovery appears to be established, with GDP rising for nine consecutive quarters now and above its pre-crisis peak. But the latest data showed the growth rate halved in the opening months of 2015 to 0.4%, from 0.8% in the final quarter of 2014.
The Office for Budget Responsibility (OBR), which produces independent forecasts for the government, had forecast back at March’s budget that growth this year would be 0.7% in the first quarter and 2.5% for 2015 as a whole. The official figures on growth since then could prompt the OBR to cut its growth forecast on Wednesday, when it releases a new economic and fiscal outlook alongside the budget.The Office for Budget Responsibility (OBR), which produces independent forecasts for the government, had forecast back at March’s budget that growth this year would be 0.7% in the first quarter and 2.5% for 2015 as a whole. The official figures on growth since then could prompt the OBR to cut its growth forecast on Wednesday, when it releases a new economic and fiscal outlook alongside the budget.
The consultancy Capital Economics predicts:The consultancy Capital Economics predicts:
The OBR may expect a further upward revision in time. Nonetheless, we expect its 2015 forecast to fall from 2.5% to 2.4% or 2.3%. If the chancellor is lucky, the OBR will just assume that the first quarter’s weakness was temporary, rather than indicating that the economy’s potential growth is weaker than it thought.”The OBR may expect a further upward revision in time. Nonetheless, we expect its 2015 forecast to fall from 2.5% to 2.4% or 2.3%. If the chancellor is lucky, the OBR will just assume that the first quarter’s weakness was temporary, rather than indicating that the economy’s potential growth is weaker than it thought.”
The business group CBI recently cut its 2015 growth forecast to 2.4% from 2.7% after the weaker official data. The IMF predicts 2.7% growth this year.The business group CBI recently cut its 2015 growth forecast to 2.4% from 2.7% after the weaker official data. The IMF predicts 2.7% growth this year.
2. A G7 top performer2. A G7 top performer
Measured by GDP growth, the UK is one of the top performers in the G7 group of industrialised countries. This is something Osborne will be sure to re-emphasise in his budget, while also trumpeting the government’s “long-term economic plan” and no doubt saying “it is working”.Measured by GDP growth, the UK is one of the top performers in the G7 group of industrialised countries. This is something Osborne will be sure to re-emphasise in his budget, while also trumpeting the government’s “long-term economic plan” and no doubt saying “it is working”.
But at the same time he is likely to reiterate the risks from the Greek debt crisis and uncertainty in the eurozone, and pledge to do “whatever is necessary” to protect the UK’s economic security.But at the same time he is likely to reiterate the risks from the Greek debt crisis and uncertainty in the eurozone, and pledge to do “whatever is necessary” to protect the UK’s economic security.
On Greek crisis, while we hope for the best, we now need to be prepared for the worst.On Greek crisis, while we hope for the best, we now need to be prepared for the worst.
3. The UK is playing catch-up3. The UK is playing catch-up
After years of stagnating productivity, despite a growing economy, Osborne is expected to devote some of his budget to how the government hopes to improve the UK’s woeful record.After years of stagnating productivity, despite a growing economy, Osborne is expected to devote some of his budget to how the government hopes to improve the UK’s woeful record.
The latest official figures last week showed productivity, measured as output per hour, picked up in the opening months of this year. But the remarkable absence of productivity growth in the seven years since 2007, has left output per hour 15% below where it would have been if pre-crisis trends had continued, as this chart shows.The latest official figures last week showed productivity, measured as output per hour, picked up in the opening months of this year. But the remarkable absence of productivity growth in the seven years since 2007, has left output per hour 15% below where it would have been if pre-crisis trends had continued, as this chart shows.
Economists have warned that without improving productivity, the UK will struggle to raise living standards. A key worry is that as unemployment settles at a low level and firms face higher wage demands, without better productivity – more out of each hour worked – employers will have to pass that cost on in higher prices. The resulting inflation could prompt an interest rate hike sooner rather than later from the current record low of 0.5%.Economists have warned that without improving productivity, the UK will struggle to raise living standards. A key worry is that as unemployment settles at a low level and firms face higher wage demands, without better productivity – more out of each hour worked – employers will have to pass that cost on in higher prices. The resulting inflation could prompt an interest rate hike sooner rather than later from the current record low of 0.5%.
4. Wages are only just starting to rise4. Wages are only just starting to rise
While GDP growth has picked up, economists note that what really matters for economic wellbeing is GDP per person and because of population growth that is still not back to its pre-crisis strength.While GDP growth has picked up, economists note that what really matters for economic wellbeing is GDP per person and because of population growth that is still not back to its pre-crisis strength.
The ONS says GDP per head continued to grow in the first quarter but at a slower pace, rising 0.2% compared with a 0.7% increase in the previous quarter. It remains 0.6% below the pre-downturn peak.The ONS says GDP per head continued to grow in the first quarter but at a slower pace, rising 0.2% compared with a 0.7% increase in the previous quarter. It remains 0.6% below the pre-downturn peak.
Wages are now rising again in real terms after falling for years - because inflation was higher that what little pay growth there was during and after the downturn. But the return to growth is largely down to inflation being close to zero rather than pay rising. Pay growth was 2.7% in the three months to April – inflation in April was 0.1%.Wages are now rising again in real terms after falling for years - because inflation was higher that what little pay growth there was during and after the downturn. But the return to growth is largely down to inflation being close to zero rather than pay rising. Pay growth was 2.7% in the three months to April – inflation in April was 0.1%.
Other recent figures from the ONS showed that British households are still £500 a year worse off than before the financial crisis in 2008.Other recent figures from the ONS showed that British households are still £500 a year worse off than before the financial crisis in 2008.
5. A north-south divide … still5. A north-south divide … still
Osborne has vowed to create a “Northern Powerhouse” by devolving powers from Westminster and investing in transport and other infrastructure projects to break down an economic divide between north and south. He is expected to flesh out the plans in his budget.Osborne has vowed to create a “Northern Powerhouse” by devolving powers from Westminster and investing in transport and other infrastructure projects to break down an economic divide between north and south. He is expected to flesh out the plans in his budget.
There is a mountain to climb on spreading out prosperity, as shown in this chart on gross value added per head (GVA), a measure of what is generated by economic activity in an area, adjusted for population. When compared with the UK average, in 1997 and 2013, only London and the south-east had per head indices above the UK value.There is a mountain to climb on spreading out prosperity, as shown in this chart on gross value added per head (GVA), a measure of what is generated by economic activity in an area, adjusted for population. When compared with the UK average, in 1997 and 2013, only London and the south-east had per head indices above the UK value.
6. Borrowing is down, but …6. Borrowing is down, but …
The deficit – the gap between what the government receives in tax and what it spends – has come down since George Osborne took office in the last parliament in 2010.The deficit – the gap between what the government receives in tax and what it spends – has come down since George Osborne took office in the last parliament in 2010.
But weaker-than-expected tax receipts (partly as weak wage growth weighed on income tax revenues) has left the chancellor way behind on his original deficit-reduction plans, despite public spending cuts. In his first, emergency budget for the coalition government in June 2010, borrowing was expected to be £37bn in 2014-15. It was in fact £89.2bn, according to the latest official figures.But weaker-than-expected tax receipts (partly as weak wage growth weighed on income tax revenues) has left the chancellor way behind on his original deficit-reduction plans, despite public spending cuts. In his first, emergency budget for the coalition government in June 2010, borrowing was expected to be £37bn in 2014-15. It was in fact £89.2bn, according to the latest official figures.
The OBR forecast in March that borrowing would continue to fall each year and reach a small surplus in 2018-19.The OBR forecast in March that borrowing would continue to fall each year and reach a small surplus in 2018-19.
Osborne recently unveiled plans for permanent budget surpluses designed to cut the national debt. Despite anti-austerity protests in a number of UK cities, the chancellor has also said he will press ahead with £12bn of welfare cuts.Osborne recently unveiled plans for permanent budget surpluses designed to cut the national debt. Despite anti-austerity protests in a number of UK cities, the chancellor has also said he will press ahead with £12bn of welfare cuts.