Macro Application

Question 1

2018 Annual growth rate

Answer 1

1.4%
Lowest since last recession
Impact of Brexit

Question 2

Quarterly growth rate last quarter 2018

Answer 2

0.2%
Flirting with recession territory, close to negative
But from forecasts economists don’t expect a recession

Question 3

Quarterly growth rate first quarter 2019

Answer 3

0.5%

Question 4

Growth forecasts 2019

Answer 4

1.2% (OBR forecast)
Brexit slowing the economy down
Forecasts dependent on what happens with Brexit, if leave with no deal forecasts may be completely wrong

Question 5

Growth forecast 2020

Answer 5

1.4%

Question 6

Growth forecast 2021

Answer 6

1.6%

Question 7

Growth forecast 2022

Answer 7

1.6%

Question 8

Growth forecast 2023

Answer 8

1.6%

Question 9

Annual growth rates pre-crisis

Answer 9

2-2.5% (potential growth rate)

But since financial crisis potential growth rate around 1.5% (impact of financial crisis)

Question 10

Is the economy in a positive or a negative output gap?

Answer 10

Positive output gap 0.2% GDP

LR growth rate 1.5%, we’re kind of there

Question 11

Real GDP/capita

Answer 11

Average incomes

£29,000

Question 12

Total GDP

Answer 12

£2 trillion

Question 13

How is the GDP constructed

Answer 13

Services: 79% (dependent on services. Financial, legal, education)
Manufacturing: 14% (no wonder weak pound done little benefit to U.K. Economy)
Construction: 6%
Agriculture: 1%

Question 14

Unemployment rate

Answer 14

3.9%
Lowest rate since 1975
Employment rates also the highest since 1975

Question 15

What is the Natural rate of unemployment? (Full employment)

Answer 15

4% (OBR estimate)

3.9% below that, matches POG estimate

Question 16

Youth unemployment

Answer 16

11%

Not bad compared to Greece, Spain, Italy (much higher). But uk government probably wants this to come down

Question 17

Long term unemployment (1 year or more)

Answer 17

1.1%

Question 18

Wage growth

Answer 18

3.4%
High considering inflation is 1.9%
Means real wages are rising
Expect to see this as UE low, as wage bargaining high
Been a while since we’ve seen wage growth > inflation
But for last year has been higher

Question 19

Consumer confidence

Answer 19

Weakening
Especially since January, Brexit has caused uncertainty and concern
BUT; retail sales figures have been positive so still spending

Question 20

Income tax bands

Answer 20

Progressive income tax
0% up to £12,500
20% between £12,501-£50,000
40% £50,001-£150,000
45% >£150,000

Question 21

What were income tax bands in 2010?

Answer 21

0% up to £6,500

20% between £6,501-£37,800

Question 22

CPI inflation rate

Answer 22

1.9% (close to 2% target).

Expectations of around 2% as 2019 progresses

Question 23

Core inflation

Answer 23

Mark Carney’s preferred measure of inflation, as strips out volatile prices from CPI basket (fuel, gas/electricity, food, clothing)
1.8%
Close to CPI, which tells us these volatile prices aren’t distorting the rate

Question 24

Producer price inflation

Answer 24

2.4%
Future indicator of inflation as measures price rises of goods as they leave the factory
If they rise, input prices rise, CPI inflation likely to rise in future as these goods end up in retail shops
2.4% matches inflation expectations in the short-term
CPI inflation expected to be around 2.2% in May and June (matches PPI), but PPI expected to fall as the year progresses

Question 25

Inflation expectations

Answer 25

2.7% Figure high, Drives wage growth. Explains wage growth above CPI Real pay rises. As long as this remains robust and high, with low UE, real pay rises as long as wage growth > CPI

Question 26

Current account deficit

Answer 26

Large 4.4% GDP Weak £ done nothing to help CA deficit. It's just stoked inflation, SRAS shift left. Since it in fact, CA deficit hovered 3-5%. No long term sustained improvement in it

Question 27

Drivers of CA deficit

Answer 27

1. High incomes: over last 2 years, real income rise. More M expenditure But underlying reason; 2. Structural issues in the U.K. Economy (Supply Side issues): issues in particular: Productivity; since financial crisis been shocking. 19% below G7 average of the G7(7 most industrialised nations). Since financial crisis 18% lower than pre-crisis trend. Since financial crisis productivity has barely risen. No wonder exports not competitive. Despite weak £, productivity awful Investment: since Brexit vote, I desimated. Why would you invest when you're uncertain about trade relations with major exporter the EU. This is all holds back competitiveness of U.K. Exports and driver of large CA deficit Need supply-side policies

Question 28

Exchange rate (euro and dollar)

Answer 28

£ weak since Brexit, haven't seen recovery £1 = $1.30 £1 = €1.16 Before Brexit: £1 = $1.50, £1 = €1.30 Slight recovery against €, but more Eurozone's weakness than £'s strength

Question 29

Eurozone Economy

Answer 29

Slowing, roughly 1% annual growth forecast | Trade concerns and issues with Chinese growth

Question 30

US economy

Answer 30

Full employment (roughly 3% annual growth). High for developed economy

Question 31

Budget deficit

Answer 31

2% GDP (annual borrowing by U.K.) £41 billion Even at FE running a budget deficit. So running a structural budget deficit

Question 32

What was the budget deficit in 2010?

Answer 32

10% GDP | Fallen since austerity

Question 33

Forecast of budget deficit in 2023

Answer 33

0.8% but dependent on relatively strong growth rates

Question 34

National debt

Answer 34

83% GDP

Question 35

2023 national debt forecast

Answer 35

74% GDP but dependent on growth rates

Question 36

Why should we know bond yields?

Answer 36

Representative of the cost of borrowing to the U.K. Government

Question 37

Current bond yield

Answer 37

1%

Question 38

Corporation Tax

Answer 38

19% 28% (2010) Conservatives want it to fall to 17% in the future

Question 39

VAT

Answer 39

20%

Question 40

Gini coefficient

Answer 40

0.34 0.36 (2010). Austerity not traditional as seen in Greece and Italy But much higher than average for OECD countries

Question 41

Base rate

Answer 41

0.75% November 2017: 0.25% -> 0.5% July 2018: 0.5% -> 0.75% Translating to low Interest rates throughout the economy

Question 42

Average lending rate

Answer 42

1% (by banks)

Question 43

Average mortgage rate

Answer 43

1.75% (for 2 year fix 1st time buyers)

Question 44

Business confidence

Answer 44

Weak since Brexit vote

Question 45

IR evaluation

Answer 45

Even though low. Consumer and business confidence low so not expecting increasing c or I

Question 46

Mortgage approvals

Answer 46

Flat growth Sign of low consumer confidence House prices rising slowly

Question 47

QE

Answer 47

£435 billion

Question 48

Most recent QE

Answer 48

August 2016: £60 billion | To try to prevent post-Brexit recession

Question 49

Willingness to lend

Answer 49

Very poor from financial crisis up to 2016. Banks pessimistic Since increase but small and medium enterprises not in much value.