UK Economy Overview 2024

Importance of UK Economy Knowledge

• Essential for macroeconomics exams.
• Use stats and knowledge to strengthen and score higher in essays.
• Share knowledge with other students and those interested in economics.

Economic Growth

• 2023 Annual Growth: 0.1% (Stagnant economy, technically in recession).
  • Quarter 4 of 2023: -0.3% growth.
  • Expected positive growth in Q1 2024.
• Factors Affecting Growth:
  • Demand Side: High interest rates, taxation, government spending cuts, low confidence.
  • Supply Side: Rising fuel prices, constrained supply, poor infrastructure, weak investment.
• Potential Growth Rate:
  • Pre-Financial Crisis: 2.5%.
  • Post-Crisis to COVID: 1.5%.
  • Current Estimation: Around 1%.
• Future Growth Forecast: 0.8% for 2024.
• Output Gap: Negative by 0.1%.

GDP Breakdown

• Services Sector: 79% of GDP.
• Manufacturing: 14%.
• Construction: 6%.
• Agriculture: 1%.

Unemployment

• Current Rate: 4.2% (Cyclical unemployment).
• Natural Rate: Approximately 3.5%.
• Data Relevance: Based on a flawed labor force survey.
• Economic Inactivity: 22.2%.
  • Causes: Long-term sickness, older workers not returning post-COVID.
  • Impact: Drives wage growth, labor market tightness, affects potential growth.

Wage Growth

• Current Growth: 5.6% in real terms.
• Impact: Higher purchasing power, but problematic for inflation.
• Future Outlook: Expected to decrease with rising unemployment and easing inflation.

Inflation

• CPI Inflation: 3.2% (Above 2% target, but decreasing).
• Peak Inflation: 11.1% in October 2022.
• Core Inflation: 4.2% (Excludes volatile food, gas, electricity, and fuel prices).
• Producer Price Inflation (PPI): 0.6% (Positive indicator for future CPI).
• Inflation Expectations: 3.3%.

Trade

• Current Account Deficit: 3.2% of GDP.
• Historical Average: 4%.
• Structural Weaknesses: Poor productivity, low business investment, high minimum wages.
• Currency Exchange: Weak pound impacts import costs more than export competitiveness.
• Trading Partners: US performing well; Euro area stagnating.

Government Finances

• Budget Deficit: 4.2% of GDP.
• National Debt: 98% of GDP.
• Tax Policies:
  • Income Tax: Progressive system with frozen bands leading to fiscal drag.
  • Corporation Tax: Increased to 25%.
  • VAT: 20%.
  • Gini Coefficient: 0.357 (Rising inequality).

Interest Rates

• Bank of England Base Rate: 5.25% (Increased to control inflation).
• Average Lending Rate: 6.25%.
• Future Outlook: Rates expected to remain stable until inflationary pressures ease.
• Savings Ratio: 10.5%.

Quantitative Easing

• Total amount: £895 billion.
• Major increases during financial and COVID crises.

Conclusion

• Key stats and insights are crucial for exam preparation and understanding the UK economy.
• More resources and videos are available for comprehensive revision.