OECD Economic Surveys: United Kingdom 2017

OECD

• Publisher: OECD
• Year: 2017
• eBook ISBN: 9789264283015
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Assessment and recommendations

• Macroeconomic developments
• Monetary and fiscal policy
• Stimulating regional productivity
• Improving productivity and job quality of low-skilled workers

Economic performance was solid until the end of 2016, stimulated by a strong business-friendly environment, very supportive and reactive monetary policy, and a flexible approach in meeting fiscal goals (Table 1). The pace of economic expansion has been steady and gross domestic product (GDP) is about 9% above the peak just before the global crisis (Figure 1, Panel A), but the economic consequences of the planned exit from the European Union (EU) in March 2019 (Brexit) cut growth to the lowest annualised rate in the G7 in the first half of 2017. Growth, high labour market flexibility and large labour supply have pushed the unemployment rate down to below 4.5% (Figure 1, Panel B). Economic activity has been particularly job-rich. Both the employment rate at 75% for people aged 16 to 64 and total hours worked are the highest on record, partly due to immigration from the European Union which has expanded the labour market. Fiscal sustainability has also improved, with the budget deficit falling towards 3.0% of GDP and public debt stabilising at below 90% of GDP in 2016. Prudential policies have bolstered financial stability, but new pockets of risks have emerged and Brexit uncertainties have led to pressures to relocate some financial activities overseas.

Figure 1. Economic performance has been good until recently, reducing the unemployment rate

Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database), September.

StatLink http://dx.doi.org/10.1787/888933600638

Table 1. Macroeconomic indicators and projections
Annual percentage change, volume (2015 prices)
	2013 Current prices (GBP billion)	2014	2015	2016	2017	2018
Gross domestic product (GDP)	1 752.6	3.1	2.3	1.8	1.6	1.0
Private consumption	1 153.2	2.1	2.6	2.8	1.6	0.9
Government consumption	348.1	2.5	0.6	1.1	0.7	0.7
Gross fixed capital formation	277.2	7.1	2.8	1.3	2.3	-1.1
Housing	70.1	10.6	4.3	5.1	3.9	-1.0
Business	161.4	5.1	3.7	-0.4	1.5	-2.1
Government	45.7	8.6	-2.8	1.5	2.0	2.1
Final domestic demand	1 778.4	3.0	2.2	2.2	1.5	0.5
Stockbuilding1	9.5	0.7	0.2	-0.1	-0.8	-0.1
Total domestic demand	1 787.9	3.6	2.5	2.1	0.7	0.4
Exports of goods and services	519.9	2.7	5.0	1.1	5.2	3.2
Imports of goods and services	555.3	4.5	5.1	4.3	2.5	1.1
Net exports1	-35.4	-0.6	-0.1	-0.9	0.7	0.6
Other indicators (growth rates, unless specified)
Potential GDP	. .	1.6	1.7	1.5	1.6	1.3
Output gap2	. .	-0.8	-0.2	0.0	0.0	-0.2
Employment	. .	2.4	1.7	1.4	1.2	0.3
Unemployment rate	. .	6.2	5.4	4.9	4.5	4.8
GDP deflator	. .	1.7	0.5	2.0	2.2	2.0
Consumer price index (harmonised)	. .	1.5	0.1	0.6	2.8	2.7
Core consumer prices (harmonised)	. .	1.6	1.1	1.2	2.4	2.7
Household saving ratio, net3	. .	2.4	3.4	1.2	-1.0	-1.6
Current account balance4	. .	-5.3	-5.1	-5.6	-4.7	-4.5
General government fiscal balance4	. .	-5.7	-4.3	-3.3	-2.6	-2.5
Underlying general government fiscal balance2	. .	-6.6	-5.5	-4.0	-3.9	-3.0
Underlying government primary fiscal balance2	. .	-4.2	-3.5	-1.9	-1.7	-1.0
General government gross debt (Maastricht)4	. .	87.4	88.2	88.3	87.5	87.3
General government net debt4	. .	80.4	81.7	91.8	91.0	90.8
Three-month money market rate, average	. .	0.5	0.6	0.5	0.3	0.3
Ten-year government bond yield, average	. .	2.6	1.9	1.3	1.2	0.9
1. Contribution to changes in real GDP
2. As a percentage of potential GDP.
3. As a percentage of household disposable income.
4. As a percentage of GDP.
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database), October.

Peoples’ quality of life in the United Kingdom is close to or above the average in the OECD (Figure 2, Panel A). In particular, social connections are significantly stronger, personal security is higher, and environmental quality is better. Jobs and earnings are good, and people enjoy good health status. Income and wealth, housing, and education and skills stand out as areas where progress is needed, and on which greater labour productivity would have had a beneficial impact. However, labour productivity performance has been very weak, and there has been little catch up across regions and workers (Chapters 1 and 2). This may lead to, or be the result of, important differences among people in terms of income and wealth, jobs and earnings, and education and skills (Figure 2, Panel B). Well-being inequalities may have been one of the causes of Brexit, as less educated workers in remote regions might have perceived to benefit less from the European project.

Figure 2. Average social indicators are relatively solid, but they are unequally distributed

Better Life Index, 20161

1. Each well-being dimension is measured by one to four indicators from the OECD Better Life Index set. Normalised indicators are averaged with equal weights. Indicators are normalised to range between 10 (best) and 0 (worst) according to the following formula: (indicator value – minimum value)/(maximum value – minimum value) × 10.

2. The panel shows well-being outcomes in various dimensions for people in the United Kingdom with different socio-economic background. In the dimensions of “income and wealth”, “health” and “civic engagement and governance”, “high (/low) achievers” are people with an income belonging to the top/(bottom) quintile of the income distribution; in “jobs and earnings”, “high (/low) achievers” are people with the high/(low)est educational attainment (i.e. ISCED 5/6 versus ISCED 0/1/2) or with gross earnings belonging to the top/(bottom) quintile of the distribut...

Table of contents

• Title page
• Legal and rights
• Introduction
• Executive summary
• Assessment and recommendations
• Thematic chapters
• About the OECD