BVRLA Economics Presentation June 20

UK Economic Outlook A presentation for the BVRLA Residual Value and Remarketing Forum, 18 June 2020 Š Centre for Economics and Business Research ltd

1. Global Context

2020

2. Impact of Covid-19 on UK economy

2

3. Forecasts and Conclusions

2020

CPB World Trade Monitor, Volume, year

3

World trade has collapsed amid the coronavirus outbreak

-

on

-

year change

China records first GDP contraction since comparable records begun in 1992 following lockdown enforced in late January China, Gross Domestic Product, National, Total, Constant Prices, Change Y/Y

17.5

15.0

12.5

10.0

Percent

2020

7.5

5.0

2.5

0.0

1992

1994

1996

1998

2000

China, Gross Domestic Product, National, Total, Constant Prices, Change Y/Y

4

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

-

2.5

-

5.0

-

7.5

Annual change in GDP - 2020 forecast -5.0%

Japan

-6.0%

2020

United States

GDP expected to contract at rates not seen since the Great Depression

Germany

-6.5%

Australia

-6.5% -7.0%

Canada Spain

-9.0%

France

-9.0%

Italy

-10.0%

United Kingdom -11.1% -12.0%

5

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Source: Cebr Global Prospects, June 2020

Global economy to contract sharply in 2020, with bounceback expected for 2021 World GDP growth, annual change 6% 4%

2020

2% 0% -2% -4%

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

6

2000

-6%

1. Global Context

2020

2. Impact of Covid-19 on UK economy

7

3. Forecasts and Conclusions

UK GDP, quarterly change

2020

1.5%

Q2 expected to dwarf contraction during first three months of the year

1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0%

8

2020 Q1

2019 Q3

2019 Q1

2018 Q3

2018 Q1

2017 Q3

2017 Q1

2016 Q3

2016 Q1

2015 Q3

2015 Q1

2014 Q3

2014 Q1

2013 Q3

2013 Q1

2012 Q3

2012 Q1

2011 Q3

2011 Q1

-2.5%

Source: ONS

Claimant Count, thousands (LHS)

Unemployment, % (RHS)

3,000

10.0 9.0

2020

2,500

Unemployment data are lagging but claimant count shows large labour market impact

8.0 7.0

2,000

6.0 5.0

1,500

4.0 1,000

3.0 2.0

500

1.0 0.0 2006 May 2006 NOV 2007 MAY 2007 NOV 2008 MAY 2008 NOV 2009 MAY 2009 NOV 2010 MAY 2010 NOV 2011 MAY 2011 NOV 2012 MAY 2012 NOV 2013 MAY 2013 NOV 2014 MAY 2014 NOV 2015 MAY 2015 NOV 2016 MAY 2016 NOV 2017 MAY 2017 NOV 2018 MAY 2018 NOV 2019 MAY 2019 NOV 2020 MAY

0

Claimant Count: the number of people claiming benefits principally for the reason of being unemployed. Some employed people are eligible for benefits.

9

ILO Unemployment: all those who are out of work, actively seeking work and available to start work.

but the drop in hours worked clearly shows the sharp reduction in labour demand 1080.0

Total actual weekly hours worked (millions), UK, s.a.

1060.0 1040.0

2020

1020.0 1000.0 980.0 960.0 940.0 920.0 900.0

10

2016 2016 2016 2016 2016 2016 2017 2017 2017 2017 2017 2017 2018 2018 2018 2018 2018 2018 2019 2019 2019 2019 2019 2019 2020 2020 JAN MAR MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV JAN MAR

Source: ONS, Cebr analysis

Consumer spending collapses as households go into lockdown Volume of UK retail sales and real wage growth, annual percentage change 8% 6% 4%

2020

2% 0% -2% -4% -6% -8% Apr-20

Jan-20

Oct-19

Jul-19

Apr-19

Jan-19

Oct-18

Jul-18

Apr-18

Jan-18

Oct-17

Jul-17

Apr-17

Jan-17

Oct-16

Jul-16

Apr-16

Jan-16

Oct-15

Jul-15

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

-10%

Retail sales, three-month moving average 11

Real wage growth, annual percentage change, three month average Source: ONS, Cebr analysis

2020 12

Consumer confidence has bottomed out in April

20,247 cars registered in May – down 89% on the previous year (-51% in YTD)

2020

New Car Registrations, UK

13

Source: SMMT, Cebr analysis

2020

99.7% drop in production numbers in April – but things are getting better!

14

Source: SMMT

1. Global Context

2020

2. Impact of Covid-19 on UK economy

15

3. Forecasts and Conclusions

16

2020

GDP growth – annual change in per cent 15.0%

2020

10.0%

Three possible scenarios: Bad, worse and horrible

5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0%

2016

2017

Upside

17

2018

2019

2020

Downside

2021

2022

2023

2024

Central

2025

2026

What will determine which outcome we get?

• No economic recovery is possible if the virus is not under control.

2020

• The safer people feel, the more likely they are to spend - many have build up savings!

• A second wave and new, widespread lockdowns would push us towards the downside scenario: many firms and households will have used up savings during the current lockdown, so insolvencies could shoot up.

• An effective treatment or a vaccine would push us towards the upside scenario. If most social distancing restrictions can be eased soon, things might return to ‘normal’.

• Otherwise, a 2-phase recession looks likely: self-induced lockdown recession will change into a more classical recession where rising unemployment, business insolvencies and lack of demand reinforce each other.

• Chancellor will need to draw up another stimulus plan for the autumn.

18

Any follow-up questions please contact:

2020

Kay Neufeld, kneufeld@cebr.com Head of Macroeconomics Centre for Economics and Business Research

Š Centre for Economics and Business Research ltd www.cebr.com 19