The UK Economy in 2021

This is a short, focused update video on some of the key macro indicators for the UK economy in 2021 with a downloadable presentation.

2021 was an important year of partial recovery from the first phase of the covid pandemic. Having awareness of some key UK macro indicators is vital to help to getting top marks for application in 2022 exams!

Real GDP grew by 7.5% after falling by 9.4% during 2020

The 7.5% increase in GDP during 2021 wasthe fastest growth seen among the G7 countries. But, the UK is recovering from a lower base, having contracted 9.4% in 2020. That was a steeper downturn than other G7 members. Only Spain experienced a deeper downturn among high-income countries (Spain is not in the G7)

The unemployment rate has been declining over the last year – it is now just 4.1% of the labour market

The number of people in jobs has recovered the falls after the furloughscheme ended, the unemployment rate has fallen to pre-COVID levels, job vacancies are at a record high. Around 500,000 people (mainly over 50 years old) have left the labour market and are now economically inactive.

There is now a record level of job vacancies in the labour market

The record level of job vacancies is a sign of a tightening labour market. The balance of wage bargaining power might be tilting towards employees especially in sectors where there are large and persistent shortages of skilled workers.

Consumer price inflation has surged to a 30-year high

CPI inflation is now further above the Bank of England’s 2% target than at any point since the UK first adopted an inflation target in October 1992. The cost of living crisis is real and is impacting many millions of households. Lower income families are expected to be hardest hit by rising food & energy prices.

House prices increased by an average of 10 per cent in 2021

House prices may start to struggle in the near term if the Bank of England send more signals that they are willing to raise interest rates further in order to control inflation. Property affordability is a huge problem in the housing market and rents continue to out-pace the growth of people’s incomes impeding geographical mobility of labour.

The Bank of England has started raising interestrates – now at 0.5%

In normal circumstances with inflation more than three times the official target of 2%, then the central bank would be acting decisively to raise base interest rates to control inflationary pressures. There seems to be continued policy inaction at the BoE which risks them losing some credibility.