UK Economic Situation April – June 2012 (Quarter 2 of 2012 or 2012 Q2) The third revision of figures

GDP and Sector Accounts Key Figures GDP growth for Q2 revised up to -0.4% from -0.5% (Note “GDP growth for Q2” means how GDP changed between Q1 and Q2 of 2012) Production -0.7%, Construction -3.0%, Services -0.1% GDP growth for 2011 = 0.9% Household final consumption expenditure -0.2% Household saving ratio 6.7% in 2012 Q2 Real household disposable income growth +1.9% in 2012 Q2

Balance of payments Current account deficit widened to £20.8 billion in 2012 Q2 (£15.4 billion in 2012 Q1), the highest on record and the highest as a percentage of GDP at 5.4% Driven by: £3.2 billion increase in the income deficit to £5.2 billion in 2012 Q2, due to an increase in the deficit in investment income £2.0 billion increase in the trade deficit to £10.1 billion in 2012 Q2, due to an increase in the deficit in trade in goods

GDP Revisions for Q ReleaseGDP growth rateData contentInformation released Month 1-0.7%44%GDP(Output) Month 2-0.5%83%GDP(Output), GDP(Income) and GDP(Expenditure) Month 3-0.4%92%GDP(O), GDP(I) and GDP(E), and additional information.....

GDP Growth and ‘Special Events’ £357,324bn£357,477bn Try to guess the “special events” that affected or are likely to affect GDP growth

Government spending and GDP(E) Households Government NPISH GFCF Trade So how would the GDP figures be affected if the government suddenly stopped spending?

New Information at Month Three (1) Can you describe and explain this graph?

New information (2) What can you say about the graph before and after the 08/09 recession?

Office for Budget Responsibility Growth Forecast What kind of forecasts do you think this office would give? Optimistic? Pessimistic? Now seeing the forecasts, do you think they are optimistic or pessimistic about UK GDP growth?

The ‘Productivity Puzzle/GDP Conundrum/Paradox’ Pre-recession Employment is nearly back to it’s 2008 level but GDP is not See Notes Why do you think this is called the “Productivity Puzzle”?

Change in the Type of Employment One way to explain the puzzle: Part time employment has been rising. Try to outline why this helps explain the productivity puzzle/GDP conundrum.

An Increase in Underemployment Another way to explain the puzzle: Underemployment has been rising and Over employment falling. What do you think underemployment and overemployment are? (See notes) Try to outline why this helps explain the productivity puzzle/GDP conundrum.

Conclusions The contraction of GDP has been revised upward but this doesn’t change the economic picture Government expenditure has held up the economy Improvement in disposable income, providing much needed relief to households. OBR growth forecast looks optimistic given Q2 GDP figures Labour market more resilient than output  the “Productivity Puzzle”