monetary policy and measures to support lending and revive the housing market”. 2 As the OECDSecretary-General set out “Britain has a long term economic plan, but it needs to stick with it”. 31.6 CPI inflation was 0.3% in January <strong>2015</strong>, down from 0.5% in December 2014. The lowinflation recently experienced by the UK has mostly been driven by global factors, notably thesharp fall in oil prices and the decline in food prices. The Governor of the Bank of England hasset out that three-quarters of the movement in inflation relative to the 2% inflation target hasbeen caused by food, energy and other goods prices. 4 Box 1.A sets out the impact of lower oilprices on the global and UK economy.Box 1.A: Impact of lower oil prices on the global and UK economyBetween 2009 and 2011 global commodity prices rose rapidly, resulting in higher-thanexpectedinflation in the UK, which peaked at 5.2% in September 2011. This in turn impactedthe UK economy by reducing real incomes and raising business costs. In the second half of2014 the oil price fell significantly. From a 2014 peak of $115 a barrel in June, the price of oilfell to a low of $46 a barrel in January. 5 It has since picked up, but the OBR’s medium-termassumption is around 17% lower than in December. The OBR judges that the fall in oil pricesreflects both lower-than-expected global demand and higher-than-expected global supply ofoil. 6Chart 1.1: Crude oil (Brent) price since January 2014140120Brent Crude Front Month Future, US $ per barrel100806040200January 2014March 2014May 2014July 2014September 2014November 2014January <strong>2015</strong>March <strong>2015</strong>Source: Thomson Reuters Datastream.2‘Economic Survey of the United Kingdom <strong>2015</strong>’, Organisation for Economic Co‐operation and Development (OECD),February <strong>2015</strong>.3Remarks by Angel Gurria at the press conference for the ‘Economic Survey of the United Kingdom <strong>2015</strong>’, OECD,February <strong>2015</strong>.4Governor of the Bank of England, oral evidence to the Treasury Committee, Bank of England Inflation Reporthearings, 24 February <strong>2015</strong>.5Thomson Reuters Datastream.6‘Economic and fiscal outlook’, Office for <strong>Budget</strong> Responsibility (OBR), March <strong>2015</strong>.10 <strong>Budget</strong> <strong>2015</strong>
The OBR expects the decline in the oil price “is likely to affect economic activity in a numberof ways: boosting real household incomes and thereby consumer spending and, to a lesserextent, encouraging business investment, but weighing on North Sea production andinvestment”. 7 The OBR expects the fall in the oil price since Autumn Statement 2014 toincrease GDP growth by around 0.4 percentage points across <strong>2015</strong> and 2016, more thanoffsetting the effect on net trade of a further deterioration in the outlook for the UK’s exportmarkets.At the global level, lower oil prices can support aggregate demand if oil consumers increasetheir spending by more than oil producers cut theirs. In the February <strong>2015</strong> ‘Inflation Report’the Bank of England estimate that “the fall in oil prices since mid-2014 could boost the levelof UK-weighted world GDP by around 0.8%, offsetting some of the negative news in worlddemand since the summer, and helping to support UK exports”. 8 There is a considerablemargin of uncertainty around the global impact.Low inflation driven by the fall in global oil and food prices is good news for households.At <strong>Budget</strong> 2014, the OBR forecast that UK CPI inflation in <strong>2015</strong> would be 2.0%. The OBR’srevised forecast for CPI inflation in <strong>2015</strong> is 0.2%. Lower inflation means that on average thecost of running a household in <strong>2015</strong> will be £450 cheaper than was forecast a year ago. 9The fall in oil prices has supported household budgets. Due to petrol pump prices falling by19p per litre since March 2014, the cost of filling up a tank for the typical motorist has fallenby £11 since <strong>Budget</strong> 2014. 10 The government has made very clear that it will watch industryto ensure that savings from the fall in oil prices are being passed through to consumers.Employment, earnings and productivityEmployment1.7 The UK labour market has continued to strengthen. At the end of 2014 employment wasat its highest level ever at 30.9 million, more than 1 million above its pre-crisis peak, and up1.85 million since the current government came into power. The employment rate was 73.2%for the 3 months to December 2014, the joint highest level since records began. In 2014 theannual increase in the employment level and the annual decrease in the unemployment levelwere the largest since 1988. At the end of 2014 youth unemployment had fallen by a fifthcompared to a year earlier.1.8 Employment has increased faster in the UK since Q1 2010 than in any other country in theG7, as shown in Chart 1.2. 11 Over the last year the UK government has come closer to achievingits full employment ambition to have the highest employment rate in the G7. The internationallycomparable employment rate for the UK was 72.0% in Q3 2014, the fourth highest in the G7. 127‘Economic and fiscal outlook’, OBR, March <strong>2015</strong>.8‘Inflation Report’, Bank of England, February <strong>2015</strong>.9HM Treasury calculations based on March 2014 and March <strong>2015</strong> OBR forecasts for the consumer expendituredeflator, March <strong>2015</strong> OBR forecasts for private consumption, ONS household statistics and Department forCommunities and Local Government (DCLG) household projections.10‘Weekly road fuel prices’, Department of Energy and Climate Change (DECC), as of 10 March <strong>2015</strong>.11‘Short-Term Labour Market Statistics: Employed Population’, OECD, March <strong>2015</strong>.12‘Short-Term Labour Market Statistics: Employed Population’, OECD, March <strong>2015</strong>.<strong>Budget</strong> <strong>2015</strong>11
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