Box sets » Economic and fiscal outlook - November 2011

Rewriting history: the 1990s recession and recovery
Revisions to National Accounts data are a normal part of the Blue Book process, which reconciles the different measures of GDP and incorporates information from annual data sources. This box explored how the estimated path of the 1990s recession and recovery evolved from estimates made in the 1992 Blue Book to estimates made in the 2011 Blue Book.

Economy categories: Real GDP, Economic data revisions, Nominal GDP

Cross-cutting categories: Blue Book, Data revisions

Lower-than-expected growth in 2010-11
UK GDP had grown less quickly in 2010-11 than the OBR forecast in June 2010. This box decomposed the forecast error by expenditure component and discussed possible explanations, including the external inflation shock.
Why might potential output growth have slowed?
Potential output growth had been relatively weak in the period following the late-2000s recession. This box discussed some possible reasons, noting that indicators available at the time did not indicate a structural deterioration in the labour market.
In each Economic and fiscal outlook we publish a box that summarises the effects of the Government’s new policy measures on our economy forecast. These include the overall effect of the package of measures and any specific effects of individual measures that we deem to be sufficiently material to have wider indirect effects on the economy. In our November 2011 Economic and Fiscal Outlook, we made adjustments to our forecasts of inflation and property transactions.
Risks to the forecast from the euro area crisis
In the years following the financial crisis the euro area faced a sovereign debt crisis characterised by high government debt, poor confidence in sovereign solvency and rising risk premiums on government securities. This box considered the main channels through which an intensification of the crisis could affect the UK economy, including weaker trade, tighter credit conditions, higher domestic government borrowing costs and possible financial system impairment.

Economy categories: Net trade, GDP by expenditure

Cross-cutting categories: Financial sector

Household debt and the household balance sheet
Our November 2011 forecast implied that households would take on around £480 billion of additional debt over the forecast period. This box discussed the implications of this for the household balance sheet, noting that a large part of the increase in household debt reflects borrowing for the purchase of assets. The box also discussed the downward revision in our household debt forecast since our previous EFO, which was largely accounted for by a combination of higher saving and a weaker housing market outlook.
Explaining corporate saving
The corporate sector had run a significant surplus of profits over investment since 2003, and this surplus rose sharply following the crisis. This box explored some of the possible reasons for this, including the possibility that businesses may have used this to build up a buffer against future shocks. The box also discussed the uncertainties around the existing data, which may have overstated corporates' holdings of cash reserves.
Our general government employment (GGE) forecast is based on projections of the growth of the total government paybill and paybill per head, which is in turn based on the Government's latest spending plans. In this box we compared our GGE forecast against the outturn data since the start of the 2010 Spending Review period. This allowed some assessment of how public sector employers were progressing with their intended workforce reduction and how much adjustment would still be required.
Impact of interest rates on the public finances
This box set out the impact of changes in interest rates on our public finances forecast, including debt interest spending and income tax receipts. Updated versions of our ready reckoners can be found on our website.
The Government announced in June 2011 that it intended to take on Royal Mail’s historic pension deficit with effect from April 2012. This box explored the provisional estimates of the impact this transfer had on the public finances.
The Government undertook a number of interventions in the financial sector in response to the financial crisis and subsequent recession of the late 2000s. This box provided an update of the estimated net effect of them on the public finances as of November 2011.

Cross-cutting categories: Financial sector, Financial interventions

International comparisons
International organisations provide comparisons of deficit and debt levels. This box facilitated international comparisons by providing projections of Treaty debt and deficit on a calendar year basis.