The UK economy at a glance

The UK economy at a glance

The FT’s one-stop overview of key economic data, including GDP, inflation, unemployment, the major business surveys, the public finances and house prices

GDP growth

Over the past year, services have continued to expand robustly, while construction and manufacturing have struggled.

Q2 2017 GDP growth (QoQ)
0.3%
Increase in size of the economy compared to pre-downturn peak
8.1%
Annual % change
2.3%

Growth rates

The British economy turned in a steady performance in 2016, growing at the second fastest rate among the G7 economies. Growth in the sixth months following the EU referendum was significantly stronger than some had feared pre-vote, when the Treasury and others predicted a Brexit vote would result in recession.

Size of the economy

This has been the slowest recovery in levels of output since the 1920s, with the UK finally reaching the size it had been before the recession in the second quarter of 2013.

Growth per head

It was not until the second quarter of 2015, that GDP per head returned to roughly its pre-recession level.

Where is the UK going?

Economic growth held up better than expected in the second half of 2016 but has slowed in 2017. Forecasters predict that rising inflation, driven by the depreciation of sterling, will squeeze household incomes and depress consumer spending, which has been the main driver of economic growth in recent years.

About the nowcast
now-casting.com uses statistical modelling to determine what individual economic data points tell us about the rate of growth . The nowcast chart (right) shows the model’s evolving prediction of GDP growth in the current quarter

Current Q3 nowcast
0.46%
OBR 2017 GDP forecast
2%
OBR 2018 GDP forecast
1.6%

Prediction for Q3

Economists' forecasts

Growth in 2016 was stronger than the OBR and other forecasters were expecting at the start of the year, with little sign of any immediate post-Brexit slowdown. But the OBR predicts growth will slow in 2017 and 2018 as businesses delay investment plans and household incomes start to be squeezed by rising inflation.

The vast majority of economists expect the decision to leave the EU to hit growth in the medium to longer term.

Markets

Movements in the bond and currency markets are a barometer of investor expectations about a country’s economic prospects.

Selling bonds through the Debt Management Office is the main way the UK government borrows money to fund the gap between what it spends and the money it receives.

A rise in the premium, or yield, demanded by markets for loaning money means funding the deficit becomes more expensive.

Gilts

The UK is currently able to borrow money for close to record low costs. While this will ease pressure on the public finances, it also reflects the market’s expectation that interest rate cuts are on the way for the UK.

Read more
Global bond yields climb to multi-month highs

Dollar rate

Since the vote to leave the EU, sterling has fallen markedly, at times touching 30 year lows against the dollar. While exporters have long complained of being hindered by a strong pound, it does not necessarily follow they will get an immediate boost from a weaker currency, considering the highly uncertain trading environment.

Read more
Britain’s sliding pound reflects a devalued economy

Euro rate

Sterling is also down sharply against the euro. But because Brexit also creates risks for the single currency zone, the decline has been smaller than against the dollar.

Read more
Slide in the pound augurs more ill than good

Labour market

The UK’s rapidly falling unemployment rate has been one of the major economic success stories of the past year. Initially led by part-timers and the self-employed, the growth has broadened to include full time employees, but the pace of improvement has slowed notably. Real wages, which dropped about 8 per cent since the financial crisis began, are recovering but slowly.

Unemployment rate
4.3%
Regular weekly earnings growth in three months to August
2.1%
Employment rate
75.1%

Numbers in work

The number of people in work is close to record levels.

Proportion out of work

The unemployment rate has tumbled over the past two years from eight per cent in January 2013, but the pace of decline has slowed.

Pay

After a brief spurt, the rate of average annual pay growth has slowed even though it is still rising faster than inflation to give real pay growth after five years of stagnation and falls.

Read more
UK’s low earners receive fastest pay rise in 20 years

Productivity

A measure of how much economic output is generated for a unit of input, productivity has been the Achilles heel of the UK recovery. For many decades before the financial crisis of 2008-09, it tended to grow at a stable pace, whether measured by output per worker, output per hour worked or the efficiency of both labour and capital used.

Since the crisis, productivity has failed to pick up, confounding forecasters at the Bank of England and the Office for Budget Responsibility.

Across the economy

Since 2007, there has been a huge shift from growth in output underpinned by improved efficiency of the workforce towards all additional growth coming from more workers employed for longer hours.

Per worker

Despite a number of false dawns, there is no sign of the recovery in productivity growth that is needed for sustainable rises in living standards.

Read more
UK workers’ productivity climbs above pre-crisis levels
Economic ills of the UK extend well beyond Brexit

Per sector

Economists have debated the cause of stalled productivity growth extensively but with little consensus, save for agreement that it is partly related to weak output in the oil industry and in financial services.

Inflation

Exceptionally low inflation, driven largely by falling oil prices, supermarket price wars and the strength of sterling keeping down the costs of imports, has been a boon for household finances. But the sharp fall in the value of sterling since the vote to leave the EU means that imports will become more expensive and the Bank of England expects inflation to begin rising.

September consumer price inflation
3%
September RPI
3.9%

Consumer price index

The UK briefly dipped into deflation in April 2015 for the first time for more than half a century. Economists expect the rate to remain low months yet, before beginning to rise sharply.

Read more
Inflation rises sharply to 1% in September

Input prices

Falling oil prices have driven down input costs for manufacturers. But with sterling now much weaker, costs are beginning to rise.

Shop prices

The other big factor pushing down inflation has been falling prices in the shops. Most big retailers have hedged their exposure to sterling, so prices are likely to remain low until next year. But the rapid falls of recent years are unlikely to be repeated.

Interest rates

Before the vote to leave the EU, all the talk was of when the first rise would come. Now the question is how low will rates go?

That said, the BoE faces a tricky task. It needs to balance the desire to support the economy while ensuring that inflation – which is likely to rise following the fall in sterling – remains under control.

Base rate
0.25%

Central bank rate

The BoE cut interest rates in the aftermath of the vote to leave the EU in an attempt to shore up the economy. Governor Mark Carney has signalled that more monetary policy easing could be needed but they will need to trade off the risks of slowing growth against the risks of rising inflation and a weakening currency.

Mortgage costs

Households in a position to buy property are seeing the benefits of low rates: those who can afford to pay a big deposit are currently able to borrow exceptionally cheaply.

Consumers

Consumer spending has been one of the driving forces of the UK recovery. But concerns remain about the basis of this spending: if people are using up their savings or taking out loans this could cause future problems.

September retail sales, annual % change
1.2%
Mortgage approvals in August
66.58k

Sales volumes

Retail sales have been growing strongly as the recovery has begun to filter down to household finances, helped by low interest rates and inflation.

Consumer confidence

In the aftermath of the vote to leave the EU, consumer confidence dropped sharply but quickly recovered to pre-vote levels.

Read more
UK consumers fear weak pound could hit living standards

Mortgage approvals

Mortgage approvals remain well below pre-crisis levels.

Read more
UK housing market stabilises after Brexit vote
UK Housing Market: in depth

Services

The services sector is the real powerhouse of the UK economy, accounting for almost 80 per cent of GDP. It is one of the few parts of the economy to have surpassed its pre-recession peak.

Service output in July, annual % change
1.5%
Month-on-month change in Jul
-0.2%
Quarter-on-quarter change
0.7%

Trend

Services suffered in the downturn like the rest of the economy but on official measures the sector had regained its previous peak by the end of 2011, well ahead of the rest of the economy. It continues to expand at a healthy rate.

Read more
ONS index of services

Markit/CIPS PMI

The closely watched survey of purchasing managers fell sharply in the aftermath of the vote to leave the EU but has since recovered.

Industry

Manufacturing has a symbolic place in British economics, despite the fact that its importance has declined consistently over the decades. In 1948, it contributed about 36 per cent of GDP, compared with about 10 per cent today. The number of people employed in the sector has declined even faster than its share of output but new technology has made the sector more productive as it focuses on higher value goods.

Annual change in industrial production output in August 2017
1.6%
Annual change in manufacturing output in August
2.8%
MoM change in industrial production in August
0.2%

Industrial production

Industrial production in the UK is still struggling to recover from the recession, remaining around 9 per cent below its pre-recession size.

Read more
ONS index of production

Manufacturing

Exports remain the main weak spot for manufacturing, having been hit by the slowdown in the eurozone. Domestic demand remains strong, but the industry as a whole is still smaller that it was before the downturn.

Markit/CIPS PMI

The manufacturing PMI, which surveys activity levels, had been on a fairly consistent downward trend before the EU referendum and then fell sharply immediately after the vote. But it has since rebounded, buoyed by a rise in export demand following the depreciation of sterling.

Construction

Construction accounts for about 6 per cent of the economy, but was very hard hit by the recession. It contracted by 17 per cent from peak to trough and remains below its pre-downturn peak. After a period of growth, mainly driven by housebuilding, the sector has begun falling again, but the data remains very volatile.

Annual change in construction output in August
3.5%
Q4 2015
-0.4%
Output in Aug compared to previous month
0.6%

Output

Construction output has been slowing for a number of months, and contracted in the first quarter of 2016.

Markit PMI

Having fallen sharply after the Brexit vote, activity rebounded sharply.

Read more
UK construction bounces back after Brexit shock

Materials

Another way to ascertain the health of the industry is to look at brick deliveries.

Business

The government has introduced many schemes and used much political pressure to encourage banks to improve access to finance for businesses. Despite this lending figures from the Bank of England suggest lending declined every month from 2011 (when they started collecting data). But lending has started to grow in 2016.

Annual growth rate in lending to SMEs
-0.9%
Annual growth rate in lending to all businesses
0.3%

Non-financial businesses

Loans to all businesses remain subdued. One theory is that businesses have been taking advantage of ultra-low interest rates to pay off debt.

Small and medium enterprises

Lack of access to credit is particularly acute for small and medium businesses. Despite assurances from the banks that credit is available, many believe that the default answer will be no .

Investment

After growing strongly, business investment has disappointed amidst jitters around the exit from the European Union.

The housing market

The UK has a history of credit-led booms, followed by house price crashes: in fact the last time this happened the UK had to nationalise two banks. This means regulators now pay close attention to signs prices may be rising out of control. Since last summer, most markets have cooled but prices are still much higher than a few years ago.

Annual change in average house prices in March
9%
Rise excluding London & southeast England
5.9%
Month-on-month change
2.9%

ONS data

From the summer of 2016, the UK got a new single official house price index. Initial estimates of historic data under the new index suggest that house prices have risen faster than previously thought. Average house prices though have shifted lower as the way the average is calculated has changed to strip out the weight of a small number of high-end properties.

The Royal Institution of Chartered Surveyors

The Royal Institution of Chartered Surveyors’ monthly survey asks its members about expectations for future prices and is a closely-watched forward looking indicator.

Public finances

Public spending cuts have been a central theme since 2010 but the government is still struggling to close the UK’s budget deficit. It has been hampered by continuing weakness in tax receipts.

Public sector net borrowing

Compared with other leading advanced economies, Britain had the largest deficit bar Japan in the G7 last year. It is projected to overtake the US in 2016, but still borrow more than Italy, Canada, France and Germany.

Debt

The accumulated debt burden is still higher than 80 per cent of GDP – the highest peacetime level this century.

Revenues

Although tax receipts have begun to improve, they remain mediocre considering the strength of the recovery. The concern is that revenues may start to fall as the shock from the Brexit vote depresses economic activity.

Trade

Despite numerous initiatives by successive governments, the UK has been importing more than it exports for a long time. While financial markets have to date been relaxed about the current account deficit, some economists are beginning to worry, saying it could make the UK vulnerable to external shocks.

Trade balance

While the service sector continues to deliver a healthy return, with exports far exceeding imports, the picture is the reverse for goods, dragging down the UK’s trading position with the rest of the world.

UK balance of payments

The current account deficit reached a peacetime record at the end of 2015, largely because of the fall in receipts from investments overseas and rises in payments from the UK to foreign investors.

Read more
Current account is Britain’s post-Brexit Achilles heel

EU balance of payments

The UK has suffered particularly in relation to other EU states, whereas it has a slight surplus with the rest of the world.