hi everybody it's here a video looking at core UK economy stats for 2024 but more generally an overview of how the UK economy is doing this video is absolutely crucial for your macroeconomics exams this year your job is to take down everything that this video is going to throw at you all the key stats all the key ideas write it all in and make sure you sprinkle these in your macro essays use these stats use this knowledge to pick the best arguments in your essay to weigh up arguments to score even higher marks in your macro essays that's your job so make sure you're watching the entirety of the video go all the way to the end you don't want to miss anything and also make sure you're sharing this video to All economic students out there it's so imperative that we know the UK economy in good depbt but also share to anyone who's generally interested in economics knowledge of the UK economy is fundamentally important and note that this is one video of many in my revision for 24 exams playlist great you're watching this one but make sure you're watching them all all of those videos are geared towards helping you master your division to score the top grades in your final exams so make sure you're watching every single one but let's dive in now let's start the video looking first at economic growth in the UK well annual growth last year in 2023 was 0.1% that is barely any growth a very very poor performance in 2023 this is a stagnating economy an econom that's technically in recession we know because quarter 4 of 2023 the economy shrunk by 0.3% the quarter before quarter three was also a negative growth figure two successive quarters of negative growth is how we technically Define a recession so a stagnating economy technically in recession we know that is not going to last quarter 1 figures of 2024 will be coming out soon we're expecting that figure to be positive rate taking us out of recession but yes very poor figures on the demand side it's clear why High interest rates High rates of personal taxation cuts to government spending very low consumer and business confidence are weighing on aggregate demand but even on the supply side short run factors like Rising fuel prices gas electricity prices rising food prices of constrained Supply in the short run but even in the long run we have major constraints on our long run Supply performance for example because of very very poor productivity because of a shrinking labor force uh poor and ailing infrastructure underperforming Public Services very weak business investment is all constraining our potential growth as well in fact speaking of potential growth it has taken a battering in the UK because of all of those factors prior to the financial crisis our potential growth rate in the UK was around 2 and a half% now know what potential growth is it's the rate of growth an economy can achieve without inflation setting in so at 2 and 1 half% for a large Advanced Nation like the UK that's a good figure in the decade from the financial crisis up to co times that figure fell to around 1 and a half% which was concerning but as we're talking now our potential growth rates are approximated to be around 1% some organizations put it even lower than that which is horribly poor for an economy as big as advanced as the UK so that's where we are and no wonder therefore that growth forecast going forward is still very very weak with all of those factors weighing down on economic growth we're forecast to grow by only 0.8% this year our output Gap we are estimated to be in a negative output Gap by only 0.1% so that is actual growth as a percent of potential growth so actual growth only just lower than our potential growth at the moment now that figure might seem quite low but given that potential growth has taken an absolute battering actual growth doesn't need to be massively low for there to be a very small negative out Gap so this is more because of how poor our potential growth rate figure is as opposed to how great actual growth might be but again this figure is not massively surprising given that actual growth rates are quite low we know that but also given that unemployment is on the rise unemployment greater than the natural rate is a good indicator that you have a negative out G but only a small one given how poor potential growth is in the UK strong wage growth has helped to drive up GDP per capita that is income per person at around £36,000 in terms of our total GDP the size of the UK economy is estimated to be around 2.53 billion P but good to know the breakdown of that 79% of our GDP is made up of services sector output which is very very large manufacturing is only 14% of GDP construction makes up 6% of our GDP agriculture only 1% so this shows you how unbalanced the UK economy is heavily reliant on services not very diverse in that sense let's now talk about unemployment shall we unemployment in the UK currently stands at 4.2% this is a rising figure not massively surprising given that technically we're in recession we have a stagnating economy you expect unemployment to rise in those circumstances this therefore is cyclical unemployment uh we have an unemployment rate above the natural rate again indicating cyclical unemployment our natural rate in the UK is appr approximately 3 and a half% so we are above that but note that with all of these employment figures unemployment figur is they're coming from a dodgy lfs a dodgy labor force survey the most recent labor force survey conducted by the office for National statistics only had 15,000 participants in it usually you have a 100,000 people that partake in this survey so only 15,000 people means we can't really trust the results of that survey and the data that's come from it what the on are trying to do is move to a more technically Advanced lfs but they're not there yet so they're still using this slightly off and dodgy lfs so these figures are not as trustworthy and reliable as we want many economists think the unemployment rate is actually much higher than 4.2% but that's the official rate at the moment the employment rate that's those people of a working age who are in work is 74.5% but note that this is lower than it was preco the next figure kind of makes sense of this this is economic inactivity that is people of a working age who are either not willing to work who are not maybe physically able to work all who are not seeking work that rate is 22.2% notably higher than what it was prior to co it's increased by over two percentage points and is very very concerning for policy makers a Big Driver of why this has gone up is because of a rise in long-term six so people who are not physically able to work but also those in their 50s and 60s who have not returned back to the workforce uh as Co has ended and the reason why this is so concerning is because it drives wage growth it makes the labor market tighter if your labor force is of a smaller size but also it hammers potential growth it reduces your potential growth quite significantly it's also a big reason why we've had significant labor shortages in the UK so yes politicians Jeremy Hunt our Chancellor ruak the Prime Minister have been so concerned about rising in activity that the last two budgets have really been about policies to bring this rate down um so yeah good to know about economic inactivity and how much of a concern it is um wage growth has been driven up in part because of rising inactivity which is meant the labor market in the UK is very tight those in work have got significant wage bargaining power if firms are struggling to hire workers uh but also Rising inflation has meant bargaining power is quite high falling rates of Unemployment uh have all meant that yes wage growth has been pushed up quite a lot at 5.6% in real terms this is a positive figure so for several months now wage growth has been in a figure more than inflation inflation currently 3 .2% wage growth 5.6 tells you in real terms people's pay is going up now that's good news for workers and their purchasing power but not good news on the inflation front High wage growth like this means High underlying demand for goods and services but also wage growth like this will increase cost of production for firms who will then pass that on Via higher prices of goods and services so while it's good on a micro level for workers it's causing a bit of a headache for policy makers who are trying to fight in inflation signs are though that this figure will start to come down as unemployment Rises this year um as the labor market is loosening up as inflation starts to come down all of that should help to put downward pressure on wage growth this year so hopefully that should mean inflation continues to come down we talked about how the labor market is now loosening in the UK what do we mean by those terms a tight labor market is one where there are many many job vacancies available it's a sign that firms are looking to high workers desperately but there aren't really that many workers available because unemployment is so low that's a tight labor market we have the opposite of that right now in the UK a loosening labor market we know why because job vacancies are falling implying that firms are not as willing to hire workers a sign of weak economic conditions and low output so the need for workers is falling and maybe there are plentiful workers out there who are taking job vacancies very quickly again that should help to put lower pressure on wage growth and again an indicator that unemployment is likely to rise later this year youth unemployment is 11% that's those people age between 16 and 2 24 years old who are technically unemployed that figure has come down a lot from covid Peaks which is a good thing and consumer confidence as we're talking right now is horribly bad like seriously horribly bad so so weak and the reasons why are absolutely clear aren't they we're in a cost of living crisis we've had very very high rates of inflation interest rates have sore per personal taxation rates have gone up a lot house price growth has been very poor there are many factors unemployment On The Rise worries about job security on the rise so many factors that are driving consumer confidence very very low and we've seen that in recent retail sales figures the last two years retail sales have been very weak for an economy that's consumption driven like the UK and what consumers are doing they're moving away from luxury items spending less there and trying to prioritize a necessary expenditure pushing down retail sales pushing down consumption performance let's now move and talk about inflation CPI inflation in the UK is 3.2% it's above the target rate which is 2% but it's on its way down this is disinflationary pressure a falling positive rate of inflation and thank God it's on its way down inflation has been so scary in the UK the last 2 and a half years peaking at 11.1% that was in October 2022 11.1% when the target rate is 2% every everybody watching this video if you've been in the UK economy you know how quickly prices have been rising it has been absolutely horrible to live in that with such significant price pressures caused mainly by supply side factors Rising gas prices electricity prices Fuel and food prices have been the major drivers of that high inflation those price pressures have been easing considerably in the last year or so which has helped to put downward pressure on inflation still above Target so here disinflation yes but that still means prices are rising but at least it's on its way down towards 2% we're expecting to hit 2% later this year and in fact towards the end of the year economists are saying the figure might jump back up again but it's certainly going in the right direction at the moment the big concern with that figure is wage growth it's complicating the picture when it comes to inflation we've already seen that wage growth is quite high and that can add more fuel to the inflation fire although we do expect expect wage growth to come down later this year the next figure backs up that wage growth is keeping inflation stubbornly high at the moment this is core inflation at 4.2% core inflation is the CPI rate but without food gas electricity and fuel from the basket take out those items which are very price volatile but also which are highly weighted in the CPI basket you end up with core inflation so economists call this the underlying rate of inflation the underlying price growth of General goods and services in the economy so if ever we feel that the CPI rate is being distorted because of a change in price of one or more of those four items we can look at the core inflation rate so we can see that this is higher than the CPI rate that indicates that the CPI rate is coming down mainly because of a fall in those prices or lower price pressures from food gas electricity and fuel but the fact that this rate is higher is concerning it's more than double the 2% Target rate and is an indicated that there is underlying demand out there for goods and services of course there is when wage growth is super high so this is still concerning generally the inflation fight is ongoing even though these figures are going in the right direction we're still above the target rate there is still a risk of there being future inflation if we get policy decisions wrong so as long as core inflation is high as long as wage growth is high as long as we're above the target rate the fight against inflation is not over it's been a worrying fight the Fight Continues however producer price inflation is very much looking quite positive PPI producer price inflation tracks the change in price of a basket of goods as they've been manufactured economists call this Factory gate inflation and what it tracks is basically the change in input prices if ppi is rising significantly it's a sign that input prices cost of production is rising considerably for farms and it's a future indicator of CPI inflation this is basically wholesale inflation here here and if that's high then retail prices which is what the CPI will track and measure will then go up in the future to compensate so if this figure is low like it is at the moment only 0.6% it means that those input prices could be falling or they're rising in a very very slow rate which is good news and if it's lower than the CPI it means in the future we expect the CPI rate to come down so again this is telling us a positive thing that it's way lower than the CPI we expected to help push that CPI rate down in the future so this is a very good thing inflation expectations an important figure this is what households expect or think inflation is going to be in the coming year a very important figure because it drives future wage growth and wage bargaining is at 3.3% so households expect inflation to still be stubborn in the UK wage growth we know is running quite hot at 5.6% causing complication with the whole inflation picture and policy decisions but we also know this figure is expected to come down this year helping again to keep inflationary pressures quite cool so there you go inflation very very scary times but looking a little bit more positive now as we talk let's move now to trade before we get into trade I wanted to mention the importance of my examples for exams pack now having stats like this is wonderful which you can then use in your macro essays but really what you need is more detailed knowledge of examples for everything in the course so that no matter what question comes up in your exam you can apply really good highlevel examples to back up the points that you're making and that's exactly what this book offers it's case studies as opposed to just pure stats of every single topic here in macro so that will consist of countries and the policies they're using or countries and their macro performance and in micro it's case study knowledge of Industries or of detailed markets which means that no matter what essay comes up in your exams you're going to have great examples to back up all the arguments that you're making and that's really what you need to secure the highest grades in your final exams so if you're interested in getting this it's a great time to get it you can simply get it through my website Ecom plus.com but without further delay let's Carry On Let's now look at trade in the UK the UK has a current account deficit it size of the moment is 3.2% of GDP the last decade or 15 years the average size of the UK's current account deficit has been around 4% so we're operating around that level slightly beneath uh not massively surprising that we're slightly lower given that we're stagnating at the moment growth rates in the UK been very low helping to keep in import expenditure quite low but yes generally operating at around that Trend figure so what that tells you is if the last decade 15 years we've had a 4% of GDP current account deficit a large and persistent one then there are underlying factors that keep that deficit quite high and those factors are very much structural weaknesses or supply side drivers of very poor competitiveness in the UK economy most notably these two things productivity has been awful in the UK ever since the financial crisis if you look at productivity growth it's been poultry it's been shockingly bad compared to what it used to be prior to the financial crisis and what that does it just means we are chronically uncompetitive and cost of production for firms is higher unit labor costs will be driven up but also very weak business investment blame brexit for that ever since the brexit vote business investment has been very very low indeed both of these factors just mean that cost production will be higher for firms and Export competitiveness lower as a result add to that extremely high minimum wages in the UK we have one of the highest minimum wage rates in the world currently at £144 an hour in the last two years each year it's been going up by 10% or so significant rises in the minimum wage another reason for high uni labor cost another reason why export competitiveness is quite poor in the UK so these are the underlying reasons why generally we have a large and persistent current current account deficit one of the largest deficits in the world even though we're suddenly beneath the historical average we still have quite a high current account deficit something that should improve it is the weakness of the pound the pound is very weak it's been weak ever since the brexit vote in June 2016 one pound at the moment can buy you $124 and16 but to show you how weak that is prior to the brexit vote1 pound could get you $160 and around €140 so you can see how much the pound has come down since that brex vote now that weakness of the pound should help shouldn't it improve export competitiveness and reduce that current account deficit but we haven't seen that it's been many years now since the brexit vote we haven't seen any kind of sustained Improvement in the current account deficit because of the weakness of the pound at all and that's because we don't have a large manufacturing base we've seen that manufacturing is only 14% of GDP in the UK where a large dominant Services driven economy and our major exports are services so a manufact ing base would mean we can tap into the benefits of a weat pound we don't have much of that base the services that we tend to export are nonprice sensitive either they're not bought because of their price they're bought because of their quality their reliability their reputation so wheat pound will not help in that sense what the weat pound has done is caused problems on the supply side by making Imports more expensive in particular import of inputs so this has done more damage than it has any benefit for the UK economy what about performance of our major trading partner economies the US us is doing very well in theory good news for demand for British exports but our number one major trading partner Euro area countries EU countries well they're kind of stagnating as a group of countries as an overall economy if you group them together stagnation there uh not good news for demand for British exports so mixed picture there so there we have trade let's move on now to government finances the UK government is running a budget deficit it size is 4.2% of GDP in the most recent fiscal year 2023 to 2024 remember a budget deficit is When government spending is greater than tax revenue in a year it's basically government borrowing in a year and a fiscal year in the UK is essentially from April to April this figure is quite High by historical standards ever since the covid crisis budget deficits annual government borrowing has been eyering high couple that with how big the national debt is national debt is the total stock of government debt over time currently standing at 98% of GDP you know the last couple of years the amount of government spending on debt interest has been more than hundred billion more than what the UK government spends on education yearly so that's the damage of government finances being in bad shape the IMF came out recently saying that the UK is teetering on the edge of unsustainability when it comes to the level of government finances push these figures higher even further there's a risk of the UK defaulting on its debt the IMF have said so these are not good figures if we look at Bon yals bonds good to look at they're an indicator of the general cost of borrowing for the government this figure has gone up now at 4.2% average bond yields here but it's a figure that's come down since the disastrous list truss and quasi quaten budget contractionary fiscal policy has also helped to push this figure lower uh one example of contractionary fiscal policy has been what's happening with income tax know that in the UK we have a progressive income tax system so that means as income Rises tax rates increase the average rate of tax increases for workers this is our progressive income tax system where any income up to 12,570 is taxfree this is the personal taxfree allowance any income from £ 12,570 to 50,2 70 it's taxed at 20% any income from 50270 up to £1 125,1 140 it's taxed at 40% and any income above £ 125,1 140 it's taxed at4 45% the higher rate so income tax has been pushed up in two ways first of all the higher rate now starts at a lower figure it used to be any income above £150,000 would be taxed at 45% now it's gone down to just over £125,000 so more higher income is being taxed at 45% than it used to be but also these tax banss have been Frozen all the way to 2029 that's a very significant tax rise promoting the phenomenon of fiscal drag let's explain what that means so every year people's pay tends to go up hopefully in line with inflation where in real terms they're not better off but if these tax banss are frozen that pay rise could drag more workers into higher income tax banss where they end up paying higher rates of income tax which could actually make them worse off and in fact just this policy alone is forecast to raise the government an extra 45 billion pounds a year more by 2028 so freezing the bands great news for the government a way for them to earn more Revenue it's a contractionary fiscal policy in that sense but horrible news for workers Millions more people are going to be dragged into higher rates of tax as a result of this policy it's a very significant tax rise equivalent to a 7 percentage Point rise in income tax rates just freezing the bands to 2029 the chancellor has tried to offset some of this impact by cutting National Insurance National Insurance is another income tax on top of traditional income tax but only taxing income from employment now it's been cut twice in recent budgets from 12% to 10 now to 8 there are talks that this going to be cut further to six if there is another fiscal event before the election this year another Direct Tax has gone up that's corporation tax from 19% all the way now to 25% a big tax he there vat is 20% in the UK and our Genie coefficient an indicator of income inequality is currently 0.357 a figure that's risen over the last couple of years not surprising when you increase tax rates for those on lowest income significantly and if you cut spending on benefits like we've done recently if you cut spending in real terms on education on Health on local Council budgets income inequality is going to rise and it has from around 0.34 a couple of years ago to now 0.357 good to know there let's finish this video by talking about interest rates in the UK the bank of England base rate is currently 5.25% a figure that's risen considerably ever since December 2021 interest rates have gone up from 0.1% now all the way to 5.25% for the core reason of taming significantly higher than Target rates of inflation um economists think that this figure is now peaked we don't expect that figure to rise further as inflationary pressures continue to ease in the UK the big talk at the moment is whether it's time to start reducing interest rates given the negative impact they've had on economic growth but we know from inflation data that we've considered it's still too premature to be cutting rates wage growth is quite High Core inflation is still quite high so I'm not expecting that rate to come down really until you know summer maybe late summer at the earliest so yeah we're expecting that figure to stay as it is for a while now uh we also know that there is a risk of lower interest rates triggering inflation further we don't want to be doing that just when we think the inflation fight is being won by cutting rates we could re-trigger worryingly High rates of inflation again the average lending rate is 6.25% telling you that banks are passing on higher interest rates to Consumers and to businesses that want to borrow but those people who do want to borrow and can afford to borrow are likely to get loans as banks are willing to lend consumer confidence though we know is extremely weak we've covered why previously in this video so is business confidence quite poor at the moment not surprising with macro performance weak in the UK with policy announcements quite volatile hard to trust with an election coming up this year uh also with trade frictions that remain with the EU um with higher taxation on businesses all of that is suppressing business confidence though there are positive signs that this is gently recovering but only we're at the start of that positive trend at the moment the savings ratio that is the proportion of disposable income that's saved and not spent is 10 a half% which is quite high for historical standards in the UK but again not massively uh unexpected that figure with high interest rates we've had a very big cost of living crisis weak consumer confidence we expect savings to rise in that kind of a scenario and then quantitative easing the total amount of money that the bank of England has pumped into the UK economy stands at 895 billion that is a lot of quantitative easing this started for the first time back in 2009 during the financial crisis years but more recently during covid more than half of that figure came during the covid crisis that's a lot of money printing a lot of money being pumped into the UK economy so there you go qy figure for you so there you have it an overview of the UK economy and course stats you need to sprinkle into your macro essays to watch those marks rise in your final exam so please make sure that you've shared this video with anyone that's going to benefit from it and know that there's so much more to come more videos will be uploaded in my revision for 2024 exams playlist make sure you watch them as they come along but thank you for watching this video guys a very important one can't wait to see you in future 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