Macroeconomic musings 8th October

The UK economy continues to progress well. This year, for the 3rd year in succession, it is likely to achieve the fastest growth in GDP of the G7 countries and, also this year, real disposable income grew at its fastest rate for five years. In terms of happiness, as measured by the ONS, people are  more content than ever with a happiness rating of 7.5/10, the highest since the survey was first carried out in 2012.

However not all is going according to plan. The current account deficit continues at a record level and is being financed by overseas borrowing, inward FDI (not a bad thing) and sales of assets such as London property. As a result, although GDP is doing well, GNP (or GNI) which measure the amount of income going to UK firms and households, as opposed to GDP, which looks at activity in the UK, is doing less well and has grown by approximately 1% per year less than GDP. The difference between them is the net amount of money flowing out of the UK, for example the foreign industries in the UK sending their profits home. Furthermore we are receiving less in the form of interest, profit and dividends from our overseas assets because of lower interest rates and reduced profits as other countries struggle to escape the recession.

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