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UK Macroeconomic Outlook: Navigating Recovery and Future Prospects

The UK macroeconomic landscape in 2014 shows unexpected resilience with improved PMIs indicating a better than anticipated recovery in 2013. While consumers are saving less, there’s limited room for further reduction in the savings ratio. Real wage prospects are hopeful, with skill shortages likely to drive wage pressures, enhancing spending power. Housing remains stable outside London, with rising supply preventing bubbles. Companies are likely to increase investment plans, supported by a stronger global outlook and forecasted export growth. Key risks include housing price volatility and real wage recovery.

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UK Macroeconomic Outlook: Navigating Recovery and Future Prospects

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  1. Global & UK Macroeconomic Outlook • Andrew Goodwin agoodwin@oxfordeconomics.com • 5th February 2014

  2. 2013 was much better than expected

  3. 2013 was much better than expected

  4. PMIs suggest 2013 may have been even better

  5. The recovery has been horribly unbalanced

  6. Where do we go from here? • Limited room for consumers to further reduce the savings ratio…

  7. More confident consumers have been saving less

  8. Where do we go from here? • Limited room for consumers to further reduce the savings ratio… • …but prospects for real wages are much improved

  9. Skills shortages will boost wage pressures…

  10. …allowing spending power to steadily improve

  11. Bank Rate to remain at 0.5% until mid-2015

  12. Where do we go from here? • Limited room for consumers to further reduce the savings ratio… • …but prospects for real wages are much improved • Housing should remain supportive without prices entering bubble territory (outside of London)

  13. Rising supply should keep a lid on house prices

  14. Where do we go from here? • Limited room for consumers to further reduce the savings ratio… • …but prospects for real wages are much improved • Housing should remain supportive without prices entering bubble territory (outside of London) • Increasing signs that firms are planning to ramp up investment plans

  15. Firms have continued to add to cash piles…

  16. …but now confidence seems to be improving

  17. Where do we go from here? • Limited room for consumers to further reduce the savings ratio… • …but prospects for real wages are much improved • Housing should remain supportive without prices entering bubble territory (outside of London) • Increasing signs that firms are planning to ramp up investment plans • Improving global outlook will support stronger export growth

  18. Surveys and official export data have diverged

  19. Stronger growth forecast in most markets…

  20. …so firm pickup in exports is in prospect

  21. Faster and more balanced growth in prospect

  22. UK forecast summary

  23. Output gap is large and will close very slowly

  24. Risks to the outlook • How will companies respond to the improving outlook? • Will house prices spiral out of control? • Will real wages start to pick up as the recovery continues to gain momentum… • …and what about productivity? • Will the MPC hold its nerve? • Are we underestimating the likely recoveries in advanced economies? • Will the Eurozone avoid deflation?

  25. Alternative scenarios for the UK economy

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