Exports and domestic private sector spending therefore make up over 90% of the demand for the output of the business sector in the UK with public sector procurement and capital spending accounting for less than 10% of the total. So while the global economy continues to perform strongly and as long as private sector demand is still growing at a reasonable rate, UK plc should be well-placed to cope with the squeeze on public spending flowing from the October Spending Review (OSR). Alongside the recovery in overseas markets, domestic demand in the UK economy has also bounced back following the sharp declines seen in late 2008 and early 2009. In cash terms, domestic spending in the UK economy by consumers, government and business grew by 6.8% in the year to the second quarter of 2010. As I pointed out in a speech last month, this is relatively strong demand growth by comparison with the decade prior to the financial crisis, when the growth of domestic demand in money terms averaged 5.8%. 3 These data do not suggest that lack of demand is the main problem currently facing the private sector in the UK. We may see some slowdown in demand early next year as the fiscal measures announced in the Budget and the spending review take effect and consumers adjust to a higher rate of VAT. But this variability in the growth rate should not be confused with a genuine double dip which is still a remote possibility in my view.
According to the draft agreement, the legal spending commitments attached to the projects included in Next Generation EU shall be made, at the latest, by 31 December 2023, and the related payments will have to be made effective, at the latest, by end-2026. More specifically, 70% of the transfers should be committed during the 2021-2022 two-year period, with a country-based distribution factor that depends on the unemployment rate in 2015-2019, population and the country’s per capita income. The remaining 30% must be committed before end-2023, and the distribution factor will be adapted to incorporate more directly the heterogeneous impact of the health crisis. Thus, the unemployment rate will be replaced by a variable that will weight, in equal portions, the decline in GDP in 2020 and the cumulative decline in GDP in 2020-2021. In sum, the fund will enable, at least in part, a balance to be struck between the potential and real financial divergences among the European partners. This is because it will benefit from the positive externalities arising from joint action and it will serve to engineer a coordinated exit from the crisis, based on common budgetary instruments. The financing of the fund through Community debt will benefit from the favourable low-interest-rate environment and will prevent this new debt being assumed by Member States individually, under conditions which, in some cases, would be foreseeably more unfavourable than those 4  which are expected to be applied to this pooled instrument.