(e) Total factor productivity growth refers to improvements in the efficiency with which both capital and labour are used to produce output. And on the remaining 10 out of 100 occasions inflation can fall anywhere outside the red area of the fan chart. Average weekly hours worked, in main job and second job. (e) Chained-volume measure. As a result of the pandemic, the global economy is projected to contract sharply by –3 percent in 2020, much worse than during the 2008–09 financial … UK demand growth remains subdued in the near term but is projected to pick up gradually as global growth recovers and as the decline in uncertainty boosts spending. (j) Chained-volume measure. In line with the new Act, the MPC’s forecasts now assume that there is an immediate but orderly move to the new trading arrangements on 1 January 2021. (b) Figures show annual average growth rates unless otherwise stated. In turn, that partly reflects the recovery of some economies from recent downturns. Spare capacity persists over 2020 but is eroded gradually. There are risks around that judgement, however. As a result, spare capacity is gradually eroded over the first part of the forecast period and a margin of excess demand builds thereafter. The MPC’s projections for global growth to rise are driven in part by a pickup in EME growth. Private sector regular pay growth was 3.4% in the three months to November, down from a peak of 4.0% earlier in the year. (r) Level in Q4. Since the MPC’s November meeting, economic data had been broadly in line with the November Report. Thanks! To aid comparability with the official data, it does not include the backcast for expected revisions, which is available from the ‘Download the chart slides and data’ link. (z) Four-quarter inflation rate in Q4 excluding fuel and the impact of MTIC fraud. Political developments have led to an appreciation of sterling. “And the pandemic has left behind a backlog of postponed procedures in hospitals and a generation of pupils who have missed out on up to six months of schooling. International risky asset prices have also increased. GDP data based on the mode of the MPC’s GDP backcast. Bank staff expect GDP to grow by 0.2% in 2020 Q1. That causes some projects to become unprofitable. Further ahead, if the economy recovers broadly in line with the MPC’s projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target. The move to new trading arrangements between the UK and EU weighs on both imports and exports growth. The relationship between survey responses and actual GDP growth has tended to be weaker during periods of heightened uncertainty (see Box 3 in the February 2019 Report), with surveys underpredicting growth. In particular, the US and China have agreed the first phase of a trade deal which reduces some tariff rates relative to what was previously expected. Alternatively, margins could be rebuilt to a greater extent as excess demand emerges. Come what May: The outlook for Britain's economy by 2022. UK potential supply growth is judged to have weakened, owing in part to the impact of Brexit-related preparations and uncertainty. The IMF predicts economic growth of 5.3% this year and growth of 5.1% in 2022. More from Business Lloyds Banking Group nears £400m takeover of savings group Embark CPI inflation rises from the end of this year, and reaches 2.0% at the end of 2022 (Chart 1.7). Since 1998 based on IKBL-OFNN/(BOKH/BQKO). However, CPI inflation has been somewhat subdued. The UK economy will rebound by 7.3% in 2022, the OBR predicted. The slowing over the past couple of years partly reflects the influence of Brexit. (h) Chained-volume measure. Uncertainties about the economic outlook, including those related to Brexit, were elevated during 2019. Sources: Bank of England, Bloomberg Finance L.P., Department for Business, Energy and Industrial Strategy, Eurostat, IMF World Economic Outlook (WEO), National Bureau of Statistics of China, ONS, US Bureau of Economic Analysis and Bank calculations. Over 2019, GDP growth has been volatile owing to Brexit-related factors but, on average, it has slowed relative to previous years (Section 2). Table 1.B Potential supply growth has slowed and is expected to remain subdued, Decomposition of estimated potential supply growth (a). That could temporarily boost productivity growth relative to the MPC’s projections. (ac) Four-quarter growth in unit labour costs in Q4. The extent to which trade protectionism dampens activity depends on both its direct effects through trade flows, supply chains and production costs, and its indirect effects on uncertainty, business sentiment and investment (see Section 3 of the November Report). UK demand growth is expected to pick up a little in the near term, but to remain subdued. In any particular quarter of the forecast period, GDP growth is therefore expected to lie somewhere within the fan on 90 out of 100 occasions. Over the coming quarters, inflation will be affected by developments in a number of regulated prices. The IMF has raised its forecast for UK economic growth, which is set to outpace the euro zone this year after its slump in 2020, but is unlikely to regain its pre-pandemic size until 2022. The projections assume that no further trade barriers are announced. And on the remaining 10 out of 100 occasions GDP growth can fall anywhere outside the green area of the fan chart. The UK economy is forecast to fall an incredible amount in the current pandemic-afflicted quarter ending in June. The MPC judges that productivity growth will pick up a little from current rates over the forecast period. Economic Forecast Summary (December 2020) GDP is set to contract again in the fourth quarter of 2020 as virus containment measures are implemented, and to fall by 11.2% in 2020 as a whole. Thereafter, it increases gradually, driven by the modest recovery in global growth and the waning effects of uncertainty. Over the forecast period, this has been depicted by the light grey background. UK GDP growth slowed materially in 2019 relative to previous years. (b) Unless otherwise stated, the projections shown in this section are conditioned on: Bank Rate following a path implied by market yields; the Term Funding Scheme; the Recommendations of the Financial Policy Committee and the current regulatory plans of the Prudential Regulation Authority; the Government’s tax and spending plans as set out in the Spring Statement 2019, updated for the announcements made in Spending Round 2019; commodity prices following market paths for two quarters, then held flat; the sterling exchange rate remaining broadly flat; and the prevailing prices of a broad range of assets, which embody market expectations of the future stocks of purchased gilts and corporate bonds. (o) Chained-volume measure. The MPC judged in its annual assessment of supply that the economy has a margin of spare capacity. Whole-economy measure. Lower uncertainty over other areas of future government policy may also have played a part. Sources: BCC, CBI, IHS Markit/CIPS, ONS and Bank calculations. That slowing has been driven partly by weakening global growth…. The MPC noted that if global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation. The evolution of productivity growth is affected by Brexit. A negative figure implies output is below potential and a positive figure that it is above. A £59bn fiscal stimulus for 2021-22, equal to nearly 3% of last year’s GDP, and the chancellor’s determination to maintain the highest level of public infrastructure spending in a generation, also raised borrowing levels. (ad) Four-quarter growth in private sector regular pay based unit wage costs in Q4. (d) Capital deepening refers to growth in capital services per person-hour. “GDP per capita is expected to be 1.4% lower, which is roughly equivalent to £450 for each person in the UK,” he said. UK GDP is expected to have been flat in 2019 Q4. Growth is expected to moderate to 1.7% in 2023, 1.6% in 2024 and 1.7% in 2025. The MPC’s projection for CPI inflation over the next three years is slightly lower than in November. (k) Chained-volume measure. Slower UK GDP growth partly reflects the impact of global growth, which has weakened significantly to below potential rates. The latest data conform to the experience of the past couple of years, in which prices have tended to rise more slowly than unit labour costs. Sources: ONS and Bank calculations. Since the November Report, sterling has appreciated by around 1½%. Market contacts suggest that is likely to reflect the reduction in uncertainty about the range of potential outcomes for the Brexit process, especially in the near term. Percentage of total available household resources. Regular annual AWE growth was around 3½% compared with around 4% during the middle of the year. Britain’s economic growth will accelerate next year at the fastest rate since official records began as the economy rebounds by 7.3%, according to the government’s independent economic forecaster. Some indicators of house prices have picked up sharply over the past few months, which might be consistent with a waning drag from uncertainty. However, it is assumed to remain subdued, given how persistently weak it has been over the past decade. But the costs of the pandemic, which were expected to ease in the 2021-22 financial year, will continue to put pressure on the Treasury’s finances after third lockdown and restrictions until at least June forced the chancellor to maintain extra support for businesses and households until the autumn. Similarly, household spending growth could pick up by more than projected if uncertainty has been a material constraint up to now. Wage growth has slowed a little, although labour cost growth has remained robust. Support from these factors is sufficient to boost demand growth above weak potential supply growth. Press Spacebar or Enter to select, This page was last updated 12 February 2020, Section 1 of the Monetary Policy Report - January 2020. Monetary policy will be set to ensure a sustainable return of inflation to the 2% target. Although pay growth had eased somewhat, this appeared to have reflected primarily the unwind of a previous temporary boost. Those cost pressures are passed through to CPI inflation. After remaining broadly stable in the near term, unemployment falls further over the forecast period, putting upward pressure on wage growth. Those factors drive a recovery in annual business investment growth, which is projected to pick up from close to zero in 2019 to around 3½% by 2022 (Table 1.C). That slack was judged to lie mainly within companies, consistent with weakness in some survey measures of capacity utilisation and reflecting the assumption that there had been little deterioration in potential productivity growth relative to recent years. Consumer confidence rose to a pandemic high in April, while retail sales rose sharply by 5.4% month on month in March, as lockdown restrictions were eased. In particular, companies remain unsure about the exact nature of the UK’s future relationship with the EU. These effects will weigh on productivity growth. The economy is expected to continue this trajectory, accelerating to around 5.1% to 6.3% in 2022 before slowing down to about 1.7% and 2.0% in 2023. There is a risk, however, that the interest rate required to boost demand and return inflation sustainably to target rates has declined somewhat, given headwinds to growth from heightened global uncertainty, for example. Policy stimulus could boost growth by more than expected. Photograph: Ian West/PA Sources: Eikon from Refinitiv, IHS Markit and JPMorgan. (f) Chained-volume measure. But concerns about other global risks — including the outbreak of a new strain of coronavirus — might have risen. Based on MGSX. Activity in advanced economies is also buoyed by supportive financial conditions and monetary policy stimulus gaining traction. A week is a long time in politics and two years has been a lifetime. For more information on how these cookies work please see our Cookie policy. Quarterly global growth rates have been relatively constant over the recent past. That partly reflects the dampening effect of weak productivity growth on real income growth. Alternatively, if pay growth is maintained without a pickup in productivity growth, unit labour cost growth could be stronger. The increase in debt was lower than the 19% the OBR was forecasting in November after tax receipts were higher than expected and government spending slightly lower. Since November, there has been some positive trade policy news. The unemployment rate is projected to be broadly stable in the near term, and then falls to 3.5% by the end of the forecast period, a little further below its equilibrium rate (Chart 1.4). There is a risk that consumer-facing companies continue to absorb some of the higher labour cost pressures in their profit margins so domestic price pressures remain subdued. In part, that reflects the weakness of productivity growth over the past year, which extends the pattern seen since the financial crisis. It is possible that research and development expenditure — which has been found to be a key driver of innovation (Section 4) and has been relatively resilient in recent years — could support a stronger rise in TFP growth. UK GDP had increased by 0.3% in 2019 Q3 and was expected to rise only marginally in Q4. Over the past few years, UK asset prices — in particular the sterling exchange rate — have been sensitive to political and Brexit developments. Financial markets had remained sensitive to domestic policy developments. Figures in parentheses show the corresponding projection in the November 2019 Monetary Policy Report. Exports less imports. Uncertainty has declined recently, although it remains elevated. In addition, consumption grows a little more slowly than real labour income over the forecast period. Uncertainty has declined since November, although it remains elevated by historical standards. Prices of risky assets have risen too. Unit labour costs had nevertheless continued to grow at rates above those consistent with meeting the inflation target in the medium term. Private sector wage costs are average weekly earnings (excluding bonuses) multiplied by private sector employment. Prior to 1998 based on IKBL. Business investment growth has been weak since the referendum, and much lower in the UK than in other advanced economies on average over that period (Section 2). (a) Forecasts for GDP growth based on survey indicators of output and expectations. The MPC has also revised down its assessment of potential supply growth over the forecast period as part of its annual stocktake. It still recovers to outstrip the subdued rate of potential supply growth, however, such that excess demand builds from the end of 2021. The path for Bank Rate implied by forward market interest rates. The outlook will also depend on how firm unit labour cost growth remains…. Jonathan Gillham, the chief economist at the accountants PwC, said households will feel the impact of a weaker than expected recovery in 2021. That is similar to developments over the past year, which could suggest that households have been cautious about spending in the face of Brexit-related uncertainty. There is estimated to be around ½% of potential GDP of spare capacity in the economy currently (Table 1.A). Following its annual reassessment of the supply side of the economy, the MPC judged that the current degree of spare capacity is somewhat greater than it had previously thought. Intelligence from the Bank’s Agents suggests that uncertainty about the near-term outlook has receded. As a result, inflation is projected to be 2.0% in 2022 Q1 and 2.1% in 2023 Q1 (Chart 1.5). Domestic price pressures also rise as spare capacity is used up and excess demand then emerges. Moreover, the amount of time and effort that companies spend on Brexit planning is no longer expected to act as a drag on growth. (u) Four-quarter growth in LFS employment in Q4. Both figures are upgrades, though the latter is only marginally higher than the … This compares to 0.7% in 2020 Q1, 1.7% in 2021 Q1 and 1.9% in 2022 Q1 in the November 2019 Monetary Policy Report. Based on GAN8. Spare capacity within firms is eroded. The International Monetary Fund (IMF) has upgraded its UK economic forecasts for 2021 and 2022. It has been conditioned on the assumptions in Table 1.A footnote (b). Firm labour cost growth is assumed to push up inflation over the forecast period, consistent with the recent squeeze in consumer-facing companies’ profit margins coming to an end. The OBR emphasised that the uncertain outlook meant its forecasts remained speculative and highly sensitive to changes in the course of the pandemic and the successful rollout of the vaccine programme. United Kingdom - Public Debt 2021 budget promises sizable near-term stimulus, but modest fiscal tightening further ahead. Constructed using real GDP growth rates of 189 countries weighted according to their shares in world GDP using the IMF’s purchasing power parity (PPP) weights. Forward interest rates suggest that monetary policy will remain accommodative. The growth rates reported in the table exclude the backcast for GDP. Average of new* forecasts. (l) Chained-volume measure. Inflation is projected to be 2% in 2022 Q1 and slightly above the target in 2023 Q1. In a … After picking up notably over the past few years, pay growth has fallen back a little in recent months. “In two years from the start of the pandemic, the expectation is that the economic cost will equate to around £2,200 per person. Q4 surveys for BCC. The UK will be the fastest growing advanced economy in 2022, the fund (IMF) said, as it upgraded its growth forecasts after millions of people were jabbed to protect them against Covid-19. Over the past few months, uncertainty appears to have fallen broadly as the MPC had anticipated. “And having taken the railways back into public ownership and filled the holes in their fare boxes, it is not clear when and if passenger numbers will ever return to levels that will allow this public support to be fully withdrawn.”. It is possible, for example, that companies consider it necessary to step up their Brexit planning, particularly around the time of significant changes in trading arrangements. Consumer spending has been more resilient to uncertainty. Inflation is expected to remain materially below 2% over the second half of 2020 as those factors, as well as spare capacity, continue to drag. (w) LFS unemployment rate in Q4. There continued to be some signs that the labour market was loosening, although it remained tight. Based on MGWG. The MPC judges that the risks around its projections for potential supply growth are broadly balanced. The assumptions underpinning the nature of that FTA and its impact on the economy are set out in Box 1 of the November Monetary Policy Report. Further ahead, provided these risks do not materialise and the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target. It said borrowing of £355bn in this financial year would push the annual spending deficit to 16.9% of GDP, its highest level since 1944-45. …although there are signs that global growth has stabilised. Constructed using real GDP growth rates of 155 EME countries, as defined by the IMF WEO, weighted according to their relative shares in world GDP using the IMF’s PPP weights. Government’s independent forecaster also says Covid crisis will cost equivalent of £14,000 for every household, Last modified on Thu 4 Mar 2021 05.26 GMT. Household consumption had continued to grow steadily, but business investment and export orders had remained weak. Based on NRJS. The fan chart is constructed so that outturns of inflation are also expected to lie within each pair of the lighter red areas on 30 occasions. UK GDP growth is projected to pick up a little in early 2020. IGD: UK food and grocery forecast to grow by 15% by 2022 Date : 06 June 2017 The UK food and grocery market is forecast to grow by 15% between now and 2022, giving it a value of £213 billion, according to the latest forecasts released today by grocery research organisation IGD. Moreover, productivity growth has fallen over 2019, such that unit labour cost growth has remained robust and above its pre-crisis average rate. The projected recovery in global growth also reflects a fading impact from trade protectionism — although it continues to dampen the level of activity overall. In contrast, net trade weighs on growth over much of the forecast period. Last year the economy shrank by the most in more than three centuries, but the April 7-12 poll of around 70 economists said it would expand 5.0% this year and 5.5% in 2022. See the box on pages 48–49 of the May 2002 Inflation Report for a fuller description of the fan chart and what it represents. Chart 1.2 Most recent surveys of output and expectations point to a pickup in GDP growth in 2020 Q1, Model-based forecasts for quarterly GDP growth in 2020 Q1, based on the latest survey data (a). That accommodative path for monetary policy supports demand. In the central forecast, PPP-weighted world growth picks up from 2¾% in 2019 to 3¼% in 2020, and 3½% in 2021 and 2022. Brexit-related factors are judged to have weighed on productivity growth over the past few years. (d) Chained-volume measure. Alternatively, the impact of a large, advanced and open economy like the UK leaving the EU might be bigger than the average estimated impact across a wide range of countries. Sterling implied volatilities had fallen back materially, including relative to implied volatilities in other currencies. The most recent indicators suggest that global growth has stabilised, reflecting the partial easing of trade tensions and the significant loosening of monetary policy by many central banks over the past year. The IMF's latest World Economic Outlook report said UK's economy would grow by 5.3% in 2021, up from a previous forecast of 4.5% it made in January. Annual household consumption growth picks up from 1¼% in 2019 to 1¾% in 2021 and 2% in 2022. It was 1.4% in 2019 Q4. In addition, while businesses have been preparing for Brexit to help ensure a smooth transition, that planning is likely to have diverted time and effort away from other activities, which may also have weighed on productivity growth (Section 4). (a) Modal projections for GDP, CPI inflation, LFS unemployment and excess supply/excess demand. The main assumptions are set out in the ‘Download the chart slides and data’ link. Productivity growth is projected to be subdued relative to pre-crisis rates, although it picks up over the forecast period. Relative to the November forecast, growth slowed more than expected in 2019 Q4 and there is judged to be more spare capacity in the economy at present. There are signs in the recent data that global growth has stabilised, albeit at rates a little below potential. It is difficult to gauge at this early stage the extent to which companies’ spending intentions have increased as a result of the decline in uncertainty. (a) Average percentage point contributions to annual growth unless otherwise specified. Changes to Ofgem’s energy price cap introduce some volatility — with CPI inflation expected to pick up to 1.8% in 2020 Q1, before falling back to around 1¼% in the middle of the year. Those uncertainties had an especially large effect on business investment, leading firms to delay spending until they had more clarity about the future trading environment. (v) Level in Q4. For example, PMIs have risen a little since November, including in the manufacturing sector (Chart 1.1). In UK-weighted terms, global growth has fallen to 1.7% from 3% over the same period. The MPC’s projections are conditioned on the assumption that there is an immediate but orderly move to a deep free trade agreement with the EU on 1 January 2021. There are signs that global GDP growth has stabilised and it is expected to pick up over the forecast period, supported by policy stimulus. Forecast 2022: retail sales growth (online and offline) +1.8%. In addition, subdued CPI inflation is judged to signal that the margin of spare capacity in the economy has been slightly greater over the past. 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