UK Economics
Highlights
IFS Green Budget Report
The Institute for Fiscal Studies’ Green Budget was launched today in collaboration with Oxford Economics. We jointly presented the research examining the prospects for public finances ahead of next Month’s Budget in the UK. All the presentations and report itself can be found Here together with the associated press release: “Borrowing set to undershoot official forecasts, but downside risks limit room for manoeuvre"
29 January 2012
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The UK long-term outlook
Business surveys and labour market indicators are offering widely contrasting signals as to the degree of spare capacity in the UK economy. On balance, we place a slightly greater emphasis on the indicators of the labour market, which can generally be measured more accurately and which better fit with the anecdotal evidence. Based upon this data, we estimate that the output gap was around -3.2% of potential output at the end of 2011. This is much lower than the 2009 peak in the output gap of -6.1%, but it does imply somewhat more spare capacity than estimated by OBR. A range of factors - including a higher NAIRU, lower migration flows and tight credit conditions - mean that our forecast shows potential output growing by just 1.6% a year in 2012-16, with growth during that period accelerating from just 0.6% in 2012 to 2% a year in 2015–16, as some of the negative legacy effects of the financial crisis gradually fade. The large output gap will allow stronger growth in actual GDP, which we forecast will grow on average by 2.1% a year over the next five years, but this would still represent a significant slowdown compared with previous cycles and is somewhat weaker than the OBR’s forecast.
24 January 2012
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Why have UK exports underperformed over the last decade?
During the past decade, the UK has continued to lose market shares in world trade markets, with an acceleration of this trend during 2008-2010. While exports by other developed economies have also underperformed, some countries such as Germany have been able to increase their market shares during this time. Within overall exports, while the UK’s services exports have performed well, goods exports have underperformed. We find that while worsening competitiveness has played a role in the earlier part of the decade, the geographical focus of UK exports, with a relatively small presence in the fastest growing markets, has been the main factor behind the UK’s exports’ underperformance. A better orientation towards strong growth markets could have raised exports of goods by around 10% by 2010, which would have lifted GDP by around 1% or close to £15 billion. In addition, we find that the UK’s goods exports have underperformed compared to what their geographical focus and competitiveness would have suggested. We attribute this to a suboptimal presence in the goods most in demand, in particular machinery equipment that emerging markets heavily purchased over the last decade.
24 January 2012
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