economics

Should we be concerned about a falling savings ratio?

Should we be concerned about a falling savings ratio?

In the Bank of England’s latest forecast for the UK, they predict reasonably good economic growth in term of real GDP. At the same time, forecasts for average real incomes are more pessimistic. The Bank of England suggests UK economic growth will be maintained by consumer spending – spending which will partly be funded by a decline in the savings ratio. Essentially, real wages are forecast to stagnate (or grow slowly), but higher spending will be financed by lower saving.

Savings ratio UK

Definition of Household savings ratio: The percentage of disposable income that is saved. (1) Total savings = Disposable income – Household consumption UK Saving Ratio Latest UK household savings ratio: Q3 2016 = 5.6% (Feb 2017) The Bank of England have forecast a fall in the savings ratio during 2017 because of the effects of depreciation in the Sterling pushing up prices. If the forecast is correct it could push the savings ratio down to levels not seen since 2008 – just before the  pre financial crisis.

US economy under Obama 2009-2017

US economy under Obama 2009-2017

Barack Obama served as President from Jan 2009 – Jan 2017. When Obama came to office in Jan 2009, the US economy was in a deep recession, with falling real GDP, high unemployment and rising levels of government borrowing. As President, Obama oversaw a moderate fiscal expansion which helped to promote economic recovery and falling unemployment. Given the depth of the 2009 recession, some argue the recovery was relatively weak. But, compared to the Eurozone, the US economy performed relatively well, with unemployment falling to pre-recession levels. However, despite a…

Automation – benefits and costs

Automation – benefits and costs

Definition of automation Automation refers to the process of automatically producing goods through the use of robots, control systems and other appliances with minimal direct human operation. Within manufacturing industries, automation has led to increased labour productivity as fewer workers are needed to produce the same number of manufactured goods. A perceived downside of automation is that it leads to jobs being displaced in traditional areas of work – in particular, ’blue collar’ manufacturing jobs. Less visible is how the process of automation leads to the creation of new jobs in…

Impact of raising US interest rates on US and global economy

Impact of raising US interest rates on US and global economy

After keeping interest rates at close to zero for several years, the US Federal Reserve have moved to finally increase interest rates. This increase in interest rates is more significant than usual because it marks an end to the unique circumstance of ultra-low interest rates. The Federal Reserve have also indicated they expect to raise interest rates three times throughout 2017. The impact of increasing interest rates. I have covered this in detail before, so I won’t repeat too much here. See: Impact of raising interest rates, but to summarise: …

Problems facing UK economy post Brexit

Problems facing UK economy post Brexit

After the UK’s decision to leave the EU, what economic problems will it face? Summary of problems Devaluation of Pound Sterling, increasing price of imported goods, such as food, oil, manufacturers and domestic inflation. Decline in capital flows as UK is seen as more risky place to invest and save. Decline in inward investment. UK is currently 3rd largest destination for inward investment in world, but this may fall when it is outside the EU. UK’s large current account deficit, which will put further downward pressure on Sterling Decline in…

Health care spending in the UK

Health care spending in the UK

Since 1950, health care spending in the UK has increased dramatically in real terms (adjusted for inflation). In the post war period, we have also seen a sharp rise in public health care spending as a % of GDP (from 3% in 1960 to 7.8% in 2010). This matches a global rise in health care spending. However, despite the long-term rise in real spending, in recent years, the UK has seen a fall in health care spending as a % of GDP – and this trend is forecast to continue…

Challenges of making economic forecasts

Challenges of making economic forecasts

All economic forecasts are subject to margins of error. This is because: There are many variables affecting the economy. For example, the role of shadow banking was largely ignored in 2007 forecasts, but failed sub-prime mortgage debt had a much bigger impact on the wider economy than ever before. There is always a big element of uncertainty, e.g. how will consumers react to certain events, e.g.what will happen to oil prices? It is hard to know even the actual state of the economy (delays in getting data, data incomplete) In…