Economics Weekly - We're not there yet

We’re now NatWest Group

Come and visit us for all our latest news, insights and everything NatWest Group.

Economics Weekly - We're not there yet

The Fed’s decision to end its quantitative easing (QE) programme is an important staging post on the road to normal conditions.

Economic Analysis

03 November 2014

But as frustrated parents tell eager children on long journeys, “we’re not there yet.” By any yardstick, economies that need zero interest rates remain fundamentally weak. And the Fed made clear its intention to leave rates where they are for some time yet. What’s more, Japan expanded its QE efforts and the European Central Bank (ECB) could soon launch its own version.

Too high 

Eurozone unemployment was unchanged at 11.5% in September, where it has been stuck since the spring. Variations across the single-currency area remain significant. Unemployment is just 5% in Germany and Austria. But Italy's has been stuck at around 12.5% for the past year. While Spain can at least point to a two percentage point decline y/y, its rate remains at an exceptionally high 24%.

Too low 

Meanwhile the Eurozone flirts with deflation. Headline inflation edged up from 0.3%y/y to a still-depressed 0.4% in October. Core inflation fell back to 0.7%y/y from 0.8%. Production data disappointed, too, with Germany's business survey showing a sixth consecutive fall in October. Most businesses expect conditions to worsen in the next few months. The last time industry was this pessimistic was in 2012, when the economy shrank for six straight months. Weakening confidence alongside exceptionally low inflation deserves action from governments and the ECB.


If Britain’s railways can have the wrong type of rain then the US economy found the right type of growth in Q3. Output increased at an annual rate of 3.5% with consumers, business investment and exports all making positive contributions. While growth was slower than in Q2, its 4.6% rate reflected a rebound from the weather-affected start of the year. In fact, Q3 was the first in a year not to be influenced by unusual events. As such it is an encouraging outcome, representing decent, if unspectacular, progress.

Farewell, old friend 

The Fed finally brought down the curtain on its QE programme. While its reasons for doing so include the large fall in unemployment in recent years it believes there is still considerable slack in the job market. The consequent absence of wage pressures is one reason why inflation remains below target and why the Fed is in no hurry to raise interest rates. But QE is far from dead and buried. Japan just announced an expansion of its programme and the ECB appears to be getting closer to launching its own version too.


Mortgage approvals fell again in September meaning that the total for Q3 was 10% lower than in the first quarter of the year. Despite this, continued rises in house prices meant that mortgage lending rose, with balances up 2.2%y/y and new lending growing by 8.5%y/y. Meanwhile the consumer credit recovery continued apace with growth of 6.1%y/y, the same as in August. This came despite a slight slowdown in credit card lending growth.

A working chance 

The proportion of UK working-age households where no one has a job fell by 1.4 percentage points to 15.9% in 2014, the lowest since at least 1996. Particularly cheering is the potential impact on children. From an early age we watch, learn and copy. So growing up in a household where someone works makes us more likely to work ourselves.

Although around 1.5 million children are growing up in a household with no adult working, that number is falling. Between 2013 and 2014 the number of workless lone parent households fell by 3.7 percentage points and while, in 1996, more than half of lone parent households were not working, that's now less than a third. This is good news, both now and for the future.

Opening for business 

Mirroring the fortunes of the broader economy, the number of UK businesses increased by almost 100,000 over the past year, or by 4.4%. This takes the total to 2.26 million. London topped the list, its number rising by 7.7%. In only one industry did the number of firms decline: Finance & Insurance. For the rest, it was growth, most notably in the Professional, Scientific & Technical sectors, which added 30,000 new businesses.

No thanks 

Echoing Groucho Marx's maxim of not becoming a member of a club that would accept him, private sector workers are unwilling or unable to join a pension scheme. Scheme membership in the private sector fell from a high of 8.1 million in 1967 to just 2.8 million in 2013. That's despite there being about five million more employees.

This trend is shared among the self-employed. Between 1996 and 2013, the proportion of self-employed men contributing to a pension fell from 62% to just 22%. A number of factors have contributed to this decline in membership, but one consequence is clear. Many households will struggle to meet income expectations in retirement.


This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited.

Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the RBS Economics Department, as of this date and are subject to change without notice.

Latest news

RBS to help 2.5 million people each year to be more financially capable

RBS has today committed to helping 2.5 million people in the UK each year to improve their financial capability.

RBS to increase lending to sustainable energy sector following £1.1bn securitisation of loans to UK sustainable energy market

RBS has executed a £1.1bn securitisation deal with Macquarie Infrastructure Debt Investment Solutions (MIDIS), which will allow the bank to recycle capital and increase lending to the sustainable or renewable energy sectors.

RBS launches £1 billion Female Entrepreneurship Funding and announces targets to help create at least 50k new businesses by 2023

RBS has today announced a new £1 billion in funding through NatWest to support female entrepreneurs in the UK to scale and grow – the largest intervention by a UK lender focused specifically on female-led businesses.

We’re now NatWest Group

Come and visit us for all our latest news, insights and everything NatWest Group.

Set Tab for lightbox