Transcript Economic realities - Dr Ian Shepherdson

Brace! Brace!
This is Going to Hurt
Ian C. Shepherdson
Chief U.S. Economist, High Frequency Economics
1. The U.K. Economy, Short Version
2. The Great Contraction is Over…
UK GDP, q/q%, annualized rate
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
04
05
06
07
08
09
10
3. …But the Legacy Remains in Unemployment…
Unemployment rate (claimant count) %
Unemployment rate (Labour Force Survey) %
8
6
4
2
0
00
01
02
03
04
05
06
07
08
09
10
4. …In Shrinking Bank Lending
Bank lending to individuals, monthly change, £m
12000
10000
8000
6000
4000
2000
0
-2000
93 94 95 96
97
98 99 00
01 02 03
04 05 06
07 08 09
10
5. …Especially for Construction…
Bank lending to construction companies, 12-month total, £m
8000
6000
4000
2000
0
-2000
-4000
-6000
Jan 08
Jul 08
Jan 09
Jul 09
Jan 10
6. …With Predictable Consequences for Housing Starts…
Private housing starts, thous. (Left)
RSL housing starts, thous. (Right)
60
180
160
50
140
120
40
100
30
80
20
60
40
10
20
0
90/1
0
92/3
94/5
96/7
98/9
00/1
02/3
04/5
06/7
08/9
7. …So Waiting Lists Will Remain Huge
Social housing waiting list, millions
1.8
1.6
1.4
1.2
1.0
0.8
97
98
99
00
01
02
03
04
05
06
07
08
09
8. The Budget Deficit has Exploded
Public sector net borrowing, % GDP
12
Budget
forecast
10
8
6
4
2
0
-2
-4
70
74
78
82
86
90
94
98
02
06
10
14
9. As Recession Hit, Revenues Plunged; Spending Jumped
Nominal managed spending, £B
Nominal revenues, £B
700
650
600
550
500
450
400
350
300
98
00
02
04
06
08
10
10. But the Prior Surge in Spending Made Us Vulnerable
Real public spending, y/y%
6
5
4
3
2
1
0
-1
-2
-3
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
11. The Public Debt Ratio Cannot Rise Forever
Net public debt, % GDP
80
Budget forecast
70
60
50
40
30
20
10
0
74
78
82
86
90
94
98
02
06
10
14
12. Where to Find 5% of GDP, or £70B Per Year
13. What About Taxes?
14. Summary
• The economy is still very sluggish as the Great
Deleveraging continues
• Severe public sector retrenchment is inevitable; the
issues are the extent, timing and incidence of the pain
• Interest rates will remain very low for the foreseeable
future; there is no inflation threat
• Britain’s chronic housing shortage cannot be fixed
under these circumstances