Mar 30, 2017 - 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017. US .....
UK economic outlook Dimensions of debt conference 30 March 2017
Yael Selfin KPMG Chief Economist
UK outlook
The most immediate change since Brexit has been the fall in Sterling exchange rate Sterling exchange rate 110
2.2
105 2.0
1.8 95 90
1.6
USD/EUR
Index, 2005=100
100
85 1.4 80 1.2 75 70 1.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Effective exchange rate (LHS)
USD per (RHS)
EUR per GBP (RHS) Source: Bank of England
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Document Classification: KPMG Confidential
3
FTSE 100 8,000
FTSE 100
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Financial Times
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4
Performance is driven by external exposure Performance of KPMG indices since the Brexit vote 130
24% 1.85 125
1.75
KPMG Non-UK50
115
1.65 110 1.55 105 100
US$/GBP
KPMG INDICES
120
1.45
95
-6%
KPMG UK50
90
1.35
-16% 1.25
85
USD to GBP 80 23-Jun
1.15 11-Jul
29-Jul
16-Aug
03-Sep
21-Sep
09-Oct
27-Oct
14-Nov
02-Dec
20-Dec
07-Jan
25-Jan
Source: Data from Bloomberg, Capital IQ and Thomson Reuters Datastream, KPMG analysis.
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5
Removing the exchange rate effect changes the picture Performance of KPMG indices since the Brexit vote, rebased in USD 110
KPMG INDICES US$
105
270
4%
100 220
95 90
170
FTSE ALL WORLD US$
7%
85 80
120
75 70 23-Jun
-21% 70 14-Jul
04-Aug
25-Aug
KPMG UK50 $
15-Sep
06-Oct
27-Oct
17-Nov
KPMG Non-UK50 $
08-Dec
29-Dec
19-Jan
FTSE all world $
Source: Data from Bloomberg, Capital IQ and Thomson Reuters Datastream, KPMG analysis.
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Document Classification: KPMG Confidential
6
Labour market Unemployment rate and regular pay
6
9 8
5
4
6 5
3 4 2
3 2
Regular pay (LHS)
1
Unemployment rate, %
YoY % change in earnings
7
Unemployment rate (RHS)
1
0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: ONS
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7
Unemployment by region Unemployment rate % UK average
7 6 5 4 3 2 1 0
Source: ONS, January 2017
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8
Bank of England rates and bond yields UK key interest rates 7 10 Year Bond Yield (%) 3 Month Interbank Lending rate (%)
Annual interest rate, %
6
Official Bank Rate (%)
5
4
3
2
1
0 1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Source: Bank of England
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Document Classification: KPMG Confidential
9
Inflation is expected to remain high Consumer Price Index inflation
Forecast 6
Year on year change, %
5
4
3
2
1
0
-1
Source: ONS, KPMG projections
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Document Classification: KPMG Confidential
10
Outlook for the UK economy Annual GDP growth scenarios 4 3 Upside
Annual GDP growth, %
2
Main
1
Downside
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
-1 -2 -3 -4 -5
Source: ONS, KPMG projections
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Document Classification: KPMG Confidential
11
Brexit impact on sectors Sector exposure to EU labour and EU exports 100
Food and drink manufacturing
90
Transport and storage services
Non-food consumer goods manufacturing
80
Exposure to EU labour index
Hotels and restaurants 70
Pharmaceuticals and Biotech
Business services Construction
60
Oil and Gas
Extraction industries Wholesale and retail trade
Metals
50
Agriculture
Automotive manufacturing
Utilities
40
Industrial products Banking
Leisure services
30
IT, media and telecoms 20
10 Insurance 0 0
10
20
30
40
50
60
70
80
90
100
Exposure to EU trade index
Source: ONS data, KPMG calculations. The size of the bubble represents the size of the sector as measured by GVA compared to UK total.
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Document Classification: KPMG Confidential
12
Brexit under different scenarios Brexit sector barometers Hard Brexit Food and drink manufacturing Metals Oil and Gas Automotive manufacturing Pharmaceuticals and Biotech Non-food consumer goods manufacturing Industrial products Transport and storage services Hotels and restaurants Business services Agriculture Banking Extraction industries IT, media and telecoms Wholesale and retail trade Utilities Leisure services Construction Insurance
78 64 64 62 61 59 58 52 52 51 49 47 46 42 41 35 34 29 26
Free trade Food and drink manufacturing Hotels and restaurants Pharmaceuticals and Biotech Non-food consumer goods manufacturing Transport and storage services Oil and Gas Metals Business services Automotive manufacturing Industrial products Agriculture Extraction industries Wholesale and retail trade Construction Banking IT, media and telecoms Utilities Leisure services Insurance
94 64 59 57 56 56 54 53 53 50 50 48 46 45 42 41 41 32 10
Free labour Metals Oil and Gas Automotive manufacturing Industrial products Pharmaceuticals and Biotech Food and drink manufacturing Non-food consumer goods manufacturing Banking Business services Agriculture Transport and storage services Extraction industries IT, media and telecoms Insurance Hotels and restaurants Wholesale and retail trade Leisure services Utilities Construction
74 72 71 65 63 62 61 52 49 49 48 45 44 41 39 37 35 30 13
Source: KPMG analysis
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Document Classification: KPMG Confidential
13
UK private sector debt UK lending to individuals 1,600 1,520
1,391
UK lending to individuals, £bn
1,400 1,200 1,000 800 600 400 200 0
Source: Bank of England
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14
Household debt as a share of income Household debt as a share of disposable income, % 170 158
Share of disposabe income, %
160 150 140
136
130
120 110 100 90 80 1999
2001
2003
2005
2007
2009
2011
2013
2015 Source: ONS
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Document Classification: KPMG Confidential
15
UK consumer spending UK household income and consumption balance in 2015-16 Quarterly nominal growth rate, %
Quarterly growth rate of household income and consumption 1.6%
Consumption growth rate
Gross income growth rate
1.4% 1.2% 1.0% 0.8% 0.6%
0.4% 0.2% 0.0% Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Growth rate of consumption not matched by growth rate of income leading to an increase in debt stock
Percentage points of quarterly grwoth rate, %
Difference between income and consumption growth rates 0.8% 0.6% 0.4% 0.2% 0.0% -0.2%
-0.4% -0.6% -0.8% -1.0% Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16 Source: ONS, KPMG calculations
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16
Saving ratio UK household saving ratio
Share of household disposable income, %
14% 11.5%
12%
10%
8% 5.6%
6% 5% 4%
2%
0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: ONS
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17
Saving ratio I UK household saving ratio excluding adjustment for net pension fund equity
Share of Household disposable income, %
6%
5%
5% 4% 3% 2%
2%
1% 0% -1% -2% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: ONS, data are presented as 4-quarter moving averages The adjustment for the change in the net equity of households in pension fund reserves is equal to the total value of the actual social contributions payable into private funded pension schemes plus the total value of contribution supplements payable out of the property income attributed to insurance policy holders (i.e., holders of pension rights) minus the value of the associated service charges minus the total value of the pensions paid out as social insurance benefits by private funded pension schemes; this adjustment is designed to ensure that the balance of pension contributions over pension receipts (i.e., of “transfers” payable over “transfers” receivable) does not enter into household saving.
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Document Classification: KPMG Confidential
18
UK mortgage debt
Mortgage market Mortgage loans approvals
20,000 House purchase
Mortgage approvals, £mn
18,000
Remortgaging
16,000
Other mortgages
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Bank of England
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20
Mortgages for house purchase Share of first time and buy-to-let buyers in new mortgages, %
Share of new mortgages, %
25
20
15
10 First-time buyers 5 Buy-to-let
0 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Bank of England
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21
House prices Average house price by region 600,000
London
500,000
South East
Average house price, £
East 400,000
South West West Midlands East Midlands
300,000
North West Yorkshire and The Humber Wales
200,000
Scotland Northern Ireland North East
100,000
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: ONS © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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22
Housing supply Quarterly number of permanent dwellings starting construction 60,000
50,000
Housing starts
40,000
30,000
20,000
10,000
0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 England
Wales
Scotland
Northern Ireland Source: ONS
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23
Sustainability of housing market Ratio of median house price and median income in England and Wales
Ratio of median income to median house price
14 London South East East of England South West East Midlands West Midlands Wales Yorkshire and the Humber North West North East
12
10
8
6
4
2
0
Source: ONS © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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24
House price affordability varies by region House price to earnings ratio, first time buyers
Gross house price to earnings ratio
12
UK long term average
10 8 6 4
2 0
Source: Nationwide 2016 Q4
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Document Classification: KPMG Confidential
25
Mortgage rates Average UK mortgage interest rates, %
9
Interest rate, %
8 7 6 5 Standard Variable Rate 4
Fixed Rate 10YR Base Tracker Rate
3
Fixed Rate 5YR 2
Fixed Rate 3YR Fixed Rate 2YR
1
Official Bank Rate 0
Source: Bank of England
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26
House price affordability for first time buyers Mortgage payments as % of take home pay for first time buyers 80%
Mortgage payments as % of mean take home pay
70% 60% 50%
UK long-term average
40% 30% 20% 10%
0%
Source: Nationwide 2016 Q3
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27
Mortgages in arrears Total balance of mortgages in arrears, £mn 50,000 43,572
45,000
Mortgage balance in arreasrs, £mn
40,000 35,000 30,000 25,000 20,000 17,163
15,000 10,000 5,000 0 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Bank of England
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Document Classification: KPMG Confidential
28
UK consumer credit
Volume of outstanding consumer credit Total amount outstanding of consumer credit in the UK 250,000
Total outstanding consumer debt, £mn
200,000
150,000
100,000
50,000
0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Bank of England
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Document Classification: KPMG Confidential
30
Composition of consumer debt Total amount outstanding of consumer debt in the UK 180,000
Total outstanding debts, excluding student loans, £mn
160,000 140,000 120,000 100,000 80,000 60,000 40,000
Other lending
20,000
Credit card lending
0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Bank of England
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Document Classification: KPMG Confidential
31
Interest rates Average quoted interest rates
Average interest rate, %
25
20
Overdraft, Banks/Bldg Soc
15 Credit Cards, Banks/Bldg Soc 10 Personal Loan: 10,000 Pounds, Banks/Bldg Soc
5
Bank of England policy rate
0
Source: Bank of England
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32
Repayment expectations OBR forecasts for household incomes have been revised down
Real growth in gross disposable Household income, %
3
2.5 2015 November
2 2017 March 1.5
1
0.5
0 2016
2017
2018
2019
2020
Source: OBR
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Document Classification: KPMG Confidential
33
Insolvencies UK total number of insolvencies 45,000
42,565
40,000
Total number
35,000 30,000 25,000
26,085
20,000 15,000 10,000 5,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: The Insolvency Service
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34
Student loans Total volume outstanding of student loans 100,000
Total amount outstanding, £mn
90,000 80,000 70,000 60,000 50,000 40,000 30,000
20,000 10,000 0
Source: Bank of England
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35
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