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 90 95 100 105 110 115 120 125 012345678 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 -12 -10 -8 -6 -4 -2 0 2 4 6 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 2012-13

6. Okun’s law broken? -6% -4% -2% 0% 2% 4% 6% 8% 10% Q1 1971Q1 1981Q1 1991Q1 2001Q1 2011 -3% -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 Q1 2008 Q2Q3Q4Q1 2009 Q2Q3Q4Q1 2010 Q2Q3Q4Q1 2011 Q2Q3Q4Q1 2012 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 Q1 2008 and Q4 2012

10. Where has job creation been strongest? Source: National Statistics and Group Economics Calculations Change in employment by sector (2010-2012)

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

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