The Economic Outlook Customer Engagement Summit 27 November 2012 Roger Martin-Fagg We need 7% growth in Broad money for normal growth 7 2012 May a : broad money is the liabilities of UK banks and building societies b : nominal GDP is what flows out of our economic pipe, it is adjusted for inflation to determine real growth Loans to individuals UK Broad money and bank credit: Banks are destroying money 7% Required for normal growth June 2012 June 2012 In the nine months to June QE has created 135Bn, credit has grown by just 35bn net credit has continued to contract Money Supply and bank credit growth in the Eurozone banks are destroying money 7% UK Household income gearing: interest rates will be 0.5% until 2015 Sources: ECB, ONS and Bank calculations. Income gearing is measured as household interest payments as a percentage of disposable income. Real household consumption and income Both are declining (a) Includes non-profit institutions serving households. (b) Total available household resources, deflated by the consumer expenditure deflator. (c) Chained-volume measure. Private sector pay settlements latest 1.8%, RPI 2.8% Sources: Bank of England, Incomes Data Services, Industrial Relations Services, the Labour Research Department and ONS. We can expect this ‘saw tooth’ pattern to continue until 2016 Household saving ratio 1% change is 7Bn of spending (a) Percentage of household post-tax income. (b) Recessions are defined as at least two consecutive quarters of falling output (at constant market prices) estimated using the latest data. The recessions are assumed to end once output began to rise. 13 UK goods exports to EU and non-EU countries The non-EU is of growing importance but Asia is slowing rapidly, Brazil has stalled, the US is slowing again......... (a) Chained-volume measures (reference year 2009). Data do not exclude the estimated impact of MTIC fraud. The diamonds are the averages of data for April and May 2012. The most recent 1% growth is primarily due to inflation being lower than expected 21 Economic growth and the Real Price of Oil 120 12 Real Price of Oil Iranian revolution OPEC cuts production 100 End of Iranian hostage crisis From 2012 onwards floor price $100 World real economic growth Forecast 10 80 8 Average growth rate in real GDP, 1970-2004: 3.7% OPEC cartel collapses 60 R E C E S S I O n 75 76 77 78 79 80 Start of second war in Iraq 4 2 Growth 81 82 83 84 85 86 Boom 87 88 89 Growth 90 91 92 93 94 95 96 97 98 99 00 Percent % Constant US$ per barrel Stagflation 6 R E C E S S I O n 40 20 Invasion of Kuwait 01 02 03 04 05 06 07 08 09 10 Source: International Monetary Fund 11 12 13 The Value for Money(FFM) equation FVM = SATISFACTION MINUS PRICE Customer service is a key component of value for money. It is also a source of sustainable advantage.Outstanding customer service is a set of behaviours which cannot be easily copied Growth in sales of more than 3% pa will be only achieved by taking market share, this requires superior VFM Key points The world economy is slowing down rapidly led by Europe which will be in recession The UK will grow next year by no more than 0.5% Interest rates will remain at 0.5% House prices outside central London will continue to fall in real terms Wages will grow at under 2%, prices at 2.5%, so real incomes will continue to fall Individual businesses will only grow by taking market share. This will require superior VFM, customer service is a key component.