hi everybody this is the biggie right here we all know that examiner's want you to apply and in macroeconomics in particular they wanted to use UK examples quoting data quoting figures so that you can back up your points you can evaluate strongly you can make good judgments it's an expectation so this video here make sure you write everything down make sure you memorize this this is gold dust this is a star stuff for your exams huge take it all in guys we're gonna start with economic growth the annual growth rate in the UK economy that's growth from q1 of 2017 through two quarter 1 of 2018 stands are only one point two percent that's quite a low figure driven by a very low growth figure for growth in quarter 1 or 2018 of only not 0.1% and it's very easy to blame the bad weather for that slow down the growth of q1 this year but there are underlying reasons why growth is slowing down in the UK very low consumer confidence and very poor business confidence on major drivers why because of brexit uncertainty that's holding back into spending that's hauling that business investment these are the two big drivers add to that we still have austerity policies and to that we have a recent strengthening of the pound especially to the dollar all of these reasons holding back growth but especially the big falls in consumer and business confidence they're forecasting and growth rates by the obra is still playing bullish though if you look at forecast growth for this year 1.5% for next year 1.3 percent for the year actor 1.3 percent for 2020 11.4% 2022 1.5 percent year so you can see that forecast growth rates is still bullish but bear in mind these were made before we saw this shock growth figure of q1 this year so these could be revised downwards what's very interesting to know though is that the obeah estimate that we are currently sitting with a positive output gap size at no point 3 percent of GDP incredible they remember what a positive output gap is it's when actual growth is greater than potential growth ie long-run growth incredible because if my forecast to grow 1.5 percent and was sitting with a positive a burger that tells you that long-run growth in the UK is now around the one-and-a-half percentage points mark why is that important well because our long-run trend rate to grow there's a rate of growth whereby we're not going to see much inflationary pressure alongside a growth rate slightly beyond that that's when we start to see demand pull inflation air pressure so basically the long-run all we can take in terms of growth in the UK economy before we start seeing demand on inflation is now only one and a half percent that's our long-run trend rate of growth now that's a very low figure before the financial crisis our long-run growth rates in the UK were more like two two and a half percentage points so that tells you that since the crisis our long-run growth rates have been decimated a very poor productivity a very important vestment at drivers of they're great for you to know that in an exam that's powerful stuff right their income per head stands at thirty thousand pounds total GDP size of the economy's two trillion pounds how is that made up well 79% of the a-pillar we produce is services 14% manufacturing 6% construction 1% agriculture that tells you just how unbalanced our economy is heavily towards services in particular financial services banking services the legal services education services very heavy no wonder big weaknesses in the pound haven't fed through to significantly higher growth rates because our manufacturing sector is very very low let's look at unemployment now the UK unemployment rate stands at four point two percent Mark Carney's estimated that the natural rate of unemployment is four point two five percent in the UK so us having an unemployment rate for point two matches the estimate on the OVR others having a very small positive outlook at you but you've got to be able to critique this vigor that looks very low that looks very positive but think about all the people in the UK right now while underemployed those who are working on zero hours contracts but actually don't want to be on those those who want to work full-time that are only getting part-time work and also graduates who are working in non graduate jobs plenty of those people out there so we can critique this figure by saying what about the underemployed they are record that is fully employed is that really the case youth unemployment at eleven and a half percent long-term unemployment are you those unemployed four more than a year I have 1.1% wage growth of 2.8% I'll be talking about this more in a bit consumer confidence as I said very weak it's been very weak since the brexit vote the shock election we had last year has kept it low and a brexit uncertainty because we're close to formally leaving the EU is also driving very weak consumer confidence right now income tax bans good to know that's the tax-free allowance has been raised to eleven thousand eight hundred and fifty pounds thereafter income up to four to six thousand three hundred pounds will be taxed at 20% any income above four to six thousand three hundred up to 150,000 pounds taxed at 40% and the income above 150 thousand pounds tax a forty five percent let's now look at inflation and the balance of payments inflation in the UK economy is currently two point five percent it's forecast to be two percent by the end of the year so this inflationary pressure is expected in the UK economy and all of the higher prices caused by the wheat pound are now coming out of the CPI basket the pound is slightly appreciating against the dollar as well helping to bring down inflationary pressure where is the 2.5 percent being driven from though at the moment or food price inflation stands at three percent oil prices are higher helping to drive up fuel prices at the pumps oil prices were forty three dollars a barrel at 2016 there now $74 dollars a barrel so significant increase in all prices they're keeping inflation upside be on target core inflation so that is inflation without fuel prices without gas electricity prices without food prices these three items are very susceptible to press swings and can distort our final inflation figure so if we feel like this figure is being distorted by any one of those three items we can look at core inflation to get the underlying price growth in the UK economy we can see that core inflation is very similar to CPI inflation so we don't see any distortion by these three different items here producer price inflation is also very interesting this is known as factory gate inflation measuring the rate of price growth of goods as they leave the factory ie wholesale price inflation and this is a very good future indicator of CPI inflation because CPI measures prices of retail goods and services rights of goods when they enter a shop whereas wholesale prices that that stage before so if producer price inflation is greater than CPI inflation it's a future indicator that CPI is going to increase but we can see at the moment that PPI is actually a little bit lower than CPI backing up the notion that we are likely to continue to see disinflationary pressure going through this year inflation expectations that haven't caught up with CPI inflation expectations stand at two point nine percent and therefore we can see and we can expect wage growth to remain around the two point eight percent level this year and inflation expectations will drive wage growth and wage bargaining and that means for the first time in two years we are going to see real wage increases wage growth of around two point eight percent CPI inflation of two point five expected to fall further real wage growth so even though consumer confidence is low if real wages are rising we might still see impacts on consumption in the UK but who knows consumer confidence really is shot at the moment will we see that consumption that's good evaluation for you let's not talk about trade in the balance of payments the current account deficit we have in the UK is very large at four point one percent of GDP and that's driven by a very huge trade deficit especially your trading goods balance is in huge deficit we do have a trade in services surplus that we found really hasn't helped very much at all yet our productivity and investment are the big reasons why our trade deficit is so live-in therefore current account deficit this so enlarged productivity and investment have been very very poor ever since the financial crisis here exchange rates we are seeing a recovery to the dollar one-pan is currently equal to one dollar thirty seven it was around one dollar 40 before the Braxtons boats who are seeing a recovery against the dollar but still very weak against the euro before the brexit vote one poundage to by around 1 year of 31 years 31 so one year at 14 we are still very weak against the euro the eurozone economy is doing very well that's driving strength to the Europe the eurozone economy is forecast to grow 2.7 percent this year that's quite significant forecast growth there the US economy also doing very very well it's at full employment and you'll grow through occurring in 2.9% so our two major trading partners are doing very well so in that sense we hope to continue to see her a bit of a boost in exports there but no longer we pound against the dollar that's good to know let's now move on and talk about government finances and interest rates in the UK the current UK budget deficit stands at 2.1 percent of GDP in rural figures that's 50 billion pounds that is forecast to fall to not 0.9 percent of GDP by 2021 the continuation of austerity policy there having said that Philip Hammond has left 3 billion pounds to the side in case of a brexit shock when we leave the European Union so he's kept on the site in case we need any fiscal stimulus expansion during fiscal policy if there is a big shock to the economy when we leave the European Union on national debt to GDP so total debt stands at 86 percent of GDP here and that is forecast to fall to 78 percent of GDP by 2020 one again continuation of austerity policy and forecast growth rates to be relatively good in the UK economy over this time period bond yields and this is the average yield on a 10-year government bond stands at 1.4 percent that's important because it means that coupons that government's issue on their bonds can also be quite low meaning the cost of borrowing that the UK government right now is quite low income taxpayers have already gone through those and corporation tax stands at 19 percent that further cuts are expected expected to be around 17 percent in 2020 to expect further cuts then the 80 currently at 20 percent let's talk a little bit about income inequality our Gini coefficient is not 0.34 important to know that since austerity this figures actually come down however relative to other countries especially in the OECD and we are above the average our Gini coefficient obviously the average is not 0.3 one year as is not we three four so ready to be wider income inequality compared to other nations in the OECD let's not talk about interest rates in the UK the Bank of England interest rate is not 0.5 percent the average lending rate is also very low 1.5 percent average quoted mortgage rate and that's for a new house buys on a 2 year fixed mortgage here 1.75 percent also quite low their consumer confidence and business confidence very weak as we've said so even though there are very low interest rates out there consumer confidence and business confidence being weak might reduce the impact of these low rates feeding through to high growth Amin economy mortgage mortgage approvals here flat growth so the housing market is pretty stagnant at the moment again brexit concerns holding back new house buying quantitative easing the total amount of money pumped into the UK economy stands of 435 billion pounds just remember that in August 2016 we saw in an interest rate cut from naught point 5 percent to Noor point to 5 percent since then November 2017 we saw that rate rise back to North Point 5 percent but in August 2016 we saw an extra 60 billion pounds of QE pumped into the UK economy hence the figure is now 435 billion very good to note here that the willingness of banks to lend to small and medium enterprises was very very poor up until 2016 very weak post the financial crisis since 2016 there has been a slight improvement but if you speak to small and medium enterprises they fundamentally disagree they believe that if they wanted to go to the bank and raise finance to fund any investment they feel that default they'll get a rejection from the bank so they think that lending to them is still very weak they don't see the bank as a go-to place to go and raise finance very important in that so that covers all of these key stats and that's now finished this video guys by looking at key supply-side policies in the UK the UK government is really committed to boosting productivity we've already talked about how weak productivity is in the UK economy and so a lot of these policies will linked to productivity I've broken the board up into two on the left hand side you can see policies that really try and promote long term investment a lot of these are interventionist supply-side policies government's spending heavy not all of them but a lot of them here are we then will look at more market-based supply-side policies on the right so let's focus on long-term investment a lot of these policies to boost productivity a very important stat for you to know is that Philip Hammond the UK government have committed to spending thirty 1 billion pounds going into this national productivity investment fund so 31 billion pounds committed for government spending to boost productivity over the next five years going into a special fund and we can see where this money is going to go in a second when we look at all of these policies the first policy we look at is actually not government spending related it's a market-based policy here but corporation tax cuts since the Conservatives came into power corporation tax has been cut by four percent it was twenty three percent before they took power in 2010 now stands at nineteen percent there are plans to cut that further to seventeen percent in 2020 but now we go into more government spending policies here and so there are policies to encourage more long term investment I first we go down the bottom here there are subsidies there's tax relief available for small and medium enterprises who are engaging in research and development but there is also this investment allowance of two hundred thousand pounds for the amount of capital investment that businesses can partake in which they can claim backing into their profits it stands at two hundred thousand pounds see that's a good little snap for you to know the government is very committed in boosting skills in the UK economy they've raised the income tax free allowance as we know currently standing at eleven thousand eight hundred eight hundred fifty pounds before the Conservatives took power that figure was only six and a half thousand pounds that's a significant increase since 2010 and there are plans to raise even further to twelve and a half thousand pounds by 2020 also if known there are plans to increase the level before we start paying forty percent income tax to fifty thousand pounds it currently stands at forty six thousand three hundred pounds plans to increase that to fifty thousand pounds a game by 2020 these are all think about it tax cuts aren't they're a subtle tax cuts not direct tax cuts as we know it was subtle tax cuts to incentivize more people getting into it getting skills being trained up and then getting into work and also encouraging those who are in work to be more productive to work harder knowing that they can keep more of our income as disposable income there is government spending on apprenticeship schemes apprenticeship funding via this apprenticeship levy that businesses who employ apprentices have to pay there is also curriculum reform we know about a level reform you guys are kind of going through that there is primary school reform but there is also and reform in terms of introducing T levels technology-based mo a levels trying to diversify skills in the UK economy there are also subsidies and grants available for adults who want to train who went to get degrees there is more money being given to schools who promote maths and computer science and more people's that enroll in maths courses and computer science courses will get a greater funding so good to know that recent implementation of government spending there what about transport spending well the government is committed to spending 1.7 billion pounds into this transforming cities fund are funded by increases to vehicle excise duty and that 1.7 billion pounds is going to local councils for infrastructure improvements this year that's 2018 to 2019 the government is also committed to rail infrastructure to massive rail projects Cross Road and HS - the two biggest transport infrastructure projects in Europe as we speak here so that GT finished very soon cross rail due to finish by the end of this year and into next year the government is committed to spending a 1 billion pounds on digital infrastructure 176 million pounds for 5g networks and 200 million pounds for full fiber networks we roll about in local areas so a good to know that improve Wi-Fi speeds to have more households having access to superfast Wi-Fi that clearly boosts productivity we look at research the government is committed to making sure that government spending on research is going to be around 2.4 percent of the economy size by 2027 so a big commitment on research infrastructure spending here let's look at more market-based policies now market basis of to resume is very committed to planning reform easing patting permission for new homes to be built increasing the supply of houses and thus bringing down prices out ideally increasing affordability in the housing market the Conservative Party have also talked about trying to promote a hype a low tax low welfare society when they say high pay there was referred to higher economic growth in the past driving up incomes but to help those on lower incomes increasing the national living wage standing now at seven pounds 83 an hour that's for those aged above 25 years old for those aged below 25 increasing national minimum wages there as well we already know about low tax what about low welfare well the Conservative Party of introduced something called the Universal Credit benefit here and that's basically bringing lots of different benefits into one system to simplify the benefit system and to always encourage work whereas before with all these different benefits that people were claiming they could claim huge sums and that will sit on benefits as opposed to being incentivized to work so bringing in this one Universal Credit where all benefits come into this one type of benefit here it keeps the incentive to work you also need to know that benefits have been capped so the amount that individuals can claim has been capped at a certain level as well which means there is always this incentive to work this is a means-tested benefit to so it gradually reduces when you get into work it doesn't suddenly disappear once you start working so the incentive to work is always there not to rely on benefits competitive markets yeah the Conservative Party ugh and committed to cutting a lot of red tape deregulation you're trying to cut 10 billion pounds worth of red tape in the UK economy using this one in and throughout rule so for every regulation that's imposed 3 need to come out and also this red tape challenge so challenging businesses to cut as many burdens Ehrman unnecessary regulations as possible to hit their target here when it comes to trade in this kind of brexit era now the focus is very much on trying to promote more exports and also negotiating trade deals especially with countries outside the EU of course with the EU themselves right but especially now with countries are outside the EU seem as Unity for greater trade and the UK government to promote more of a balanced economy away from London dependency and growth being dominated in London the northern powerhouse is the way in which the Conservative Party trying to do that launched under George Osborne's still continuing now under Philip Hammond the northern powerhouse really could consists of three major ideas one the devolution of powers so allowing local councils greater power to enact their own policies so devolution of power away from London towards local councils second to give local councils more funding certainly local councils more funding to enact those policies up north and finally for local councils really to promote policies that will encourage growth that will boost infrastructure that will create jobs up north so that growth can come more from the north as opposed to coming really solely from London in this country here that's the idea of the northern powerhouse so that guys come as absolutely everything you need to know about the UK economy all the spats are that up today as on this video right now make sure that you memorize these these facts these figures and also here are one out of all these different supply-side policies this could well get you the a or the a star in your final examination so use well powerful stuff here thank you so much for watching I'll see you all in the next video