The UK Economy : How Long, How Deep

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The UK Economy How Long, How Deep?

• Dennis Turner
• HSBC Bank plc

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A SUDDEN DETERIORATION
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First quarter of negative growth for 16 years
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The labour market is turning
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Biggest interest rate cut since 1695
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SO GOOD FOR SO LONG
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Sustained low inflation
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Historically low interest rates
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Stronger and more stable sterling

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Sustained GDP growth
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BUT THE WRONG SORT OF GROWTH
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Consumers the driving force
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But underpinned by borrowing
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The public sector is making a comeback
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But government finances getting weaker
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A very unbalanced economy
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WHERE TO FROM HERE?
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Consumers under pressure
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A spending squeeze underway, because.
Forecast
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record levels of personal debt,
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the tax burden is rising and
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subdued earnings growth.
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Inflation adding to the pressure
CPI Average, Q4 2008
7.3
10.9
4.2
6.3
6.7
13.7
15.2
15.2
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So, confidence and spending in retreat
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An investment-led recovery?
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Robust corporate profitability
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Business surveys heading south
activity expanding
activity contracting
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A sluggish investment outlook
Forecast
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GROWTH IS WEAKENING
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A deep recession
Forecast
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ALL THE LEVERS ARE BEING PULLED
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The Fiscal Rules no longer apply
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Breaching the Golden Rule?
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Not with a little massaging
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Backdating the cycle helps
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and so does extending it.
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Government finances already in deficit
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Now deficits set to continue rising
Pre-Budget Report
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Investment rule no longer sustainable
Sustainable Investment Rule
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Net debt to soar to 1970s levels
Pre-Budget Report
Sustainable Investment Rule
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Interest rates to fall
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Price pressures like to ease
- RPIX - CPI
Forecast
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creating room for more interest rate cuts
F o r e c a s t
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And sterling is sliding
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And sterling has taken a pounding
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BUT
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Credit supply a drag on activity
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The funding gap
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The best and worst of the banks
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The turmoil in financial markets a major risk
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The slow thaw
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The slow thaw
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The nuclear option remains
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The spread of fear
Bond yields Merrill Lynch UK corporate bonds
index vs. UK benchmark 10-yr govt bonds
Corporate bonds
Government bonds
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THE POST-RECESSION AGENDA
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Where will growth come from?
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THANK YOU