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Silver linings in dark clouds James McCann RBS Group Economics May 2013.

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Presentation on theme: "Silver linings in dark clouds James McCann RBS Group Economics May 2013."— Presentation transcript:

1 Silver linings in dark clouds James McCann RBS Group Economics May 2013

2 Depressing times! UK national income during and after recessions (Pre-recession peak level = 100) Source: National Statistics and Group Economics Calculations Average UK recession Great Depression 2008 onwards Years since pre-recession peak in national income

3 Traditional export markets struggling Export growth 2012 (%y/y) Source: National Statistics TotalEurozoneSpainGermanyNon-EUUSAChina

4 Money’s too tight to mention UK household debt-to-income ratio (%) Source: National Statistics and Group Economics Calculations

5 How much “austerity” to go in the UK? Tax increases Investment cuts Benefit cuts Day-to-day spending Total Start Finish How much of scheduled austerity completed at end of

6 Okun’s law broken? -6% -4% -2% 0% 2% 4% 6% 8% 10% Q1 1971Q1 1981Q1 1991Q1 2001Q % -2% -1% 0% 1% 2% 3% 4% %y/y GDP growth (4 quarter ma, LHS) 12m Change in unemployment rate (RHS) Relationship between unemployment and growth in the UK Unemployment risingGDP growth Source: National Statistics and Group Economics Calculations

7 What’s going on?? Source: National Statistics and Group Economics Calculations UK productivity (100 = Q1 2000)

8 What “should” have happened? 26,500,000 27,000,000 27,500,000 28,000,000 28,500,000 29,000,000 29,500,000 30,000,000 Q Q2Q3Q4Q Q2Q3Q4Q Q2Q3Q4Q Q2Q3Q4Q Q2Q3Q4 Employment Constant productivity employment Source: National Statistics and Group Economics Calculations Actual employment and employment under constant productivity assumptions

9 What has been driving the unemployment rate? Source: National Statistics and Group Economics Calculations The UK labour market story so far (changes in the number of people (thousands) between Q and Q4 2012

10 Where has job creation been strongest? Source: National Statistics and Group Economics Calculations Change in employment by sector ( )

11 1. Real wages are falling Real average employee compensation and the unemployment rate Source: National Statistics and Group Economics Calculations

12 2. Firms substituting labour for capital Net lending/GDP (inverted scale) and the unemployment rate Source: National Statistics and Group Economics Calculations

13 3. Firms hoarding workers Business confidence (inverted scale) and the unemployment rate Source: National Statistics and Group Economics Calculations

14 What does this mean for the future? Source: National Statistics and Group Economics Calculations Unemployment forecast

15 Thank you and keep in touch! Internet Social

16 A word from our lawyers This material is published by The Royal Bank of Scotland plc (“RBS”) which is authorised and regulated by the Financial Services Authority for the conduct of regulated activities in the UK. It has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments, other financial instruments or related derivatives (“Securities”). It should not be reproduced or disclosed to any other person, without our prior consent. This material is not intended for distribution in any jurisdiction in which its distribution would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation, express or implied, nor does it accept any responsibility or liability of any kind, with regard to the accuracy or completeness of this information. Unless otherwise stated, any views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the RBS Group’s Group Economics Department, as of the date of publication of this material and are subject to change without notice. Recipients of this material should make their own independent evaluation of this information and make such other investigations as they consider necessary (including obtaining independent financial advice), before acting in reliance on this information. This material should not be regarded as providing any specific advice. RBS accepts no obligation to provide any advice or recommendations in respect of the information contained in this material and accepts no fiduciary duties to the recipient in relation to this information.


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