1. UK Economic Outlook: What will drive future growth? 25 th November 2014 Richard Holt Head of Global Cities Research rholt@oxfordeconomics.com

2. 1 Recent trends

3. Data revisions have ‘improved’ UK’s growth

4. Business momentum across sectors

5. Demand is strong & well balanced (domestically)

6. 2 Investment

7. Less need for catch up in business investment

8. But corporate profitability looking good

9. So manufacturers (others) plan to invest

10. Fixed investment growing quite fast this year 2013: up 3.2% 2014: up 8.5% Then gradually slows to 4½% growth by 2018

11. 3 Trade

12. The Eurozone recovery has stalled

13. China is slowing down

14. Those & other upsets are hurting UK exports

15. Long-term view: China may continue to slow

16. World economy: moderate long-term growth

17. Exports weak this year but improve next Exports of goods & services 0.4% down this year in real terms 2015 up 4.4% Subsequent years 5% to 6% a year growth

18. 4 Consumption

19. 2014 real incomes driven by rising employment

20. In 2015 productivity gains will slow this down

21. Evidence on wages growth v mixed

22. But fundamentals should push wages up

23. Meanwhile oil prices will help to keep inflation low

24. So sustained real wage growth in prospect

25. Steady not spectacular consumer spending rises 1.6% growth last year, 2.1% this year, then 2.3%, then 2.2%, 2.5%, 2.6%...

26. 5 Fiscal & monetary policies

27. 2014/15: winners/losers from tax/benefit changes

28. But big government spending cuts still to come UK: Departmental current spending 2006-07 to 2018-19

29. However, MPC remains dovish

30. So first interest rate hike a good way off

31. Government spending is going negative Government consumption rises 1% this year, flat in 2015, then steadily falls by about 1% a year for several years at least

32. 6 Fundamentals

33. Exports: huge reliance on net exports of services

34. Key export sectors

35. European car sales revival adding to UK demand

36. Huge backlog of orders for airliners (& engines)

37. But pharmaceutical sector struggling

38. Competitiveness issues facing other chemicals

39. Digital, professional & support services

40. Services exports currently skewed towards USA

41. China’s imports of services set to grow hugely

42. Competition in the R&D space very intense

43. In the UK 2 regions (+ North West?) stand out

44. 7 Conclusions

45. Nothing is certain

46. But the broad pattern is likely to be…

47. Clearly, more exports would be nice to have

48. And a lot more R&D (and innovation generally)

49. UK forecast summary

50. UK Economic Outlook: What will drive future growth? 25 th November 2014 rholt@oxfordeconomics.com