Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674
Email: ruthlea@arbuthnot.co.uk

 

From the desk of Ruth Lea

Economic insight and financial comment related to the ever-changing financial landscape and the economic world at large.

Economic Perspectives

22nd May 2017

Economic Insight - 22nd May 2017

No change at the Bank and the ECB, but the Fed is set to raise rates again before too long

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest decisions by the Bank of England, the ECB and the Federal Reserve, alongside latest economic indicators:
Press Release

No change at the Bank and the ECB, but the Fed is set to raise rates again before too long

Date: 22nd May 2017

No change at the Bank and the ECB, but the Fed is set to raise rates again before too long

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest decisions by the Bank of England, the ECB and the Federal Reserve, alongside latest economic indicators:
  • The MPC left policy unchanged at its May meeting and shows few signs of near-term tightening. The forecasts in the Bank’s May Inflation Report were little changed.
  • The latest indicators in the UK confirmed some weakness in 2017Q1 (but the labour market was firm), though there are indications that activity will pick-up in 2017Q2.
  • The ECB left policy unchanged at its last meeting (end-April) and shows no signs of near-term tightening despite indications that the Eurozone economy is growing steadily overall and deflation has been averted.
  • The European Commission’s latest forecasts were generally positive, though there continues to be concern about Italy and, especially, Greece.
  • The Fed is set to tighten further, despite the weak GDP figure for 2017Q1. There is a good chance rates will rise again in June, with at least one further hike in 2017.
  • The Trump administration released a (very sketchy) blueprint for tax reforms in April but, at this juncture, it is unclear what fiscal boost may eventually be delivered or indeed when.

Ruth Lea said, “The Bank is more than content to leave monetary policy unchanged at present, despite near full-employment, and the ECB’s monetary policy remains extremely accommodative, despite steady Eurozone growth overall. Only the Fed seems prepared to tighten. The Bank should at least consider reversing last August’s rate cut.”
For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk  
Follow Ruth on Twitter @RuthLeaEcon

Bell Pottinger:
Dan de Belder
020 3772 2561
ddebelder@bellpottinger.com





Download full article

8th May 2017

Economic Insight - 8th May 2017

GDP slowdown in 2017Q1 should be temporary

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest GDP data and other economic indicators:
Press Release

GDP slowdown in 2017Q1 should be temporary

Date: 8th May 2017

GDP slowdown in 2017Q1 should be temporary

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest GDP data and other economic indicators:
  • GDP grew by a less-than-expected 0.3% (QOQ) in 2017Q1. But the degree of slowdown should be temporary. There is some evidence for residual seasonality in the data.
  • The first quarter slowdown mainly reflected a weaker services sector.
  • The first was the opportunity to increase the Government’s overall majority. The Conservatives currently have a strong lead over the Labour party in the opinion polls.
  • Public Sector Net Borrowing (PSNB) was £52.0bn in FY2016, the lowest since FY2007, prior to the financial crisis.
  • Survey information (from Markit and the CBI) suggests that growth is picking up in the second quarter.
  • The MPC meets this week. No policy change is expected.

  • There were two major Brexit developments in the past fortnight:
  • The European Council agreed President Tusk’s “negotiating guidelines” (as set out on 31 March) on 29 April. The guidelines, as agreed, were not significantly different from Tusk’s March draft.
  • The Commission’s draft “negotiating directives” were released on 3 May. They will go to the Council of the EU on 22 May. There were two points of particular concern.
  • The first related to the financial settlement, where the directives were more prescriptive and detailed than anything before. Separately, there were reports that the eventual gross Brexit bill could reach €100bn.
  • The second related to demands for extra-territorial jurisdiction (by the ECJ) over the rights of EU nationals in the UK post-Brexit.

  • Given the proximity of the General Election (8 June), the local election results (4 May) were more than usually important. Broadly:
  • The Conservatives won 563 extra seats, whilst Labour lost 382. The LibDems also lost seats but their vote share rose.
  • The SNP lost 7 seats, but comfortably remained the biggest party in Scotland. Plaid Cymru made gains.
  • UKIP was all but wiped out.
  • John Curtice estimated vote shares of 38% (+13%) for the Conservatives, 27% (-2%) for Labour, 18% (+4%) for the LibDems, 5% (-18%) for UKIP and 12% (+3%) for “others”.
  • If this voting pattern were replicated at the General Election, the Conservatives could achieve an overall majority of around 50 (adjusted) – comfortable but not a landslide.

Ruth Lea said, “The weak first quarter GDP figure was probably part-erratic. And growth seems to be picking up in the second quarter. Meanwhile, there is no doubt the Commission has hardened its negotiating stance. But these are early days and the Brexit negotiations have yet to start.”
For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk  
Follow Ruth on Twitter @RuthLeaEcon

Bell Pottinger:
Dan de Belder
020 3772 2561
ddebelder@bellpottinger.com





Download full article

123456 (2016)(2015)

Comment, at a glance

GDP growth revised to 0.2% in 2017Q1
25 May 2017

GDP growth for 2017Q1 was revised down to 0.2% (QOQ) but was still 1.9% higher than a year earlier. This compares with a rise of 0.1% (revised) in 2016Q1, 0.6% in 2016Q2, 0.5% in 2016Q3 and 0.6% (revised) in 2016Q4. There is a suggestion of residual seasonality as growth was also relatively weak in 2015Q1 (0.2% (revised)), followed by quarterly rises of 0.5%, 0.3%, 0.7%.

GDP in 2017Q1 was 8.7% higher than the pre-downturn peak in 2008Q1, having surpassed it in 2013Q3. But GDP per head was flat (QOQ) in 2017Q1, to be only 1.7% above the GDP pre-downturn peak in 2008Q1, having surpassed it in 2015Q4.

Lower GDP growth in 2017Q1 was mainly due to the slowdown in services (79% of GDP), which grew by 0.2% (revised down) compared with 0.8% in 2016Q4. The slowdown in growth in 2017Q1 mainly came from the distribution, hotels and restaurants sector, with notable falls in some consumer-focused industries such as retail (reflecting rising prices). Industrial production (15% of GDP) grew by 0.1%, within which manufacturing (10% of GDP) rose 0.3%, mining and quarrying (2% of GDP) increased by 1.8% and water and allied (1% of GDP) increased 0.7%. But electricity and allied (1.5% of GDP) fell 4.3% reflecting the mild winter weather. Construction (6% of GDP) grew by 0.2%.

Turning to the expenditure side, household consumption rose 0.3% (QOQ), compared with 0.7% in 2016Q4. But gross fixed capital formation (GFCF) rose by 1.2%, making the biggest positive contribution to growth. The trade balance in goods and services significantly detracted from growth, with exports falling 1.6% (after rising in 2016Q4) whilst imports rose 2.7% (after falling in 2016Q4). The movement in exports was partly offset by the increase in the net acquisitions of valuables component. Non-monetary gold feeds into both components (exports and net acquisitions of valuables) but with opposite signs, making trading in non-monetary gold GDP neutral.  

Separately, the ONS reported that business investment increased by 0.6% (QOQ) in 2017Q1, encouragingly, to be 0.8%higher than a year earlier.  

Also separately, the ONS said the services sector grew by 0.2% (MOM) in March, to be 2.7% higher than a year earlier. The largest contribution to MOM growth came from transport, storage and communication.

 

 

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Public sector net borrowing £10.4bn in April
23 May 2017

Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a deficit of £10.4bn in April, the highest April borrowing since 2014, compared with £9.2bn in April 2016. Monthly data are erratic and it is too soon to assess trends. But it should be noted that the OBR in its March Budget forecast expected the deficit to widen in FY2017 to £58.3bn compared with FY2016 (£48.7bn, revised from previous £52.0bn). FY2016 benefited from special factors, such as delays in payments to the EU. The OBR had forecast a PSNB of £51.7bn for FY2016 in March.

Public Sector Net Debt (PSND, excluding public sector banks) was £1,722.4bn at the end of April 2017 (86.0% of GDP), compared with £1,608.3bn (83.5% of GDP) at end-April 2016.

 

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Retail sales rose 2.3% in April, and were 4.0% higher than a year earlier
18 May 2017

Retail sales (volume, GB) rose by a greater-than-expected 2.3% (MOM) in April, to be 4.0% higher (YOY). The monthly data were probably boosted by the timing of Easter (which fell in April this year) and the good weather. Average store prices (including petrol stations) increased by 3.1% (YOY) in April compared with 3.3% in March; the moderation reflected the slowing rate of inflation in fuel prices.  

Monthly data are highly erratic. And the underlying pattern, as measured by the 3-month on 3-month estimate, showed a slight increase in April 2017, following a short period of contraction, rising by 0.3% (QOQ). Sales in the 3-months to April were 3.1% higher YOY.

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Labour productivity fell 0.5% in 2017Q1
17 May 2017

According to the ONS, output per hour (their main measure of labour productivity) fell 0.5% (QOQ) in 2017Q1, after a rise of 0.4% in 2016Q4. The fall reflected a relatively weak increase in GDP in 2017Q1 (0.3%), combined with a strong growth in total hours worked (both employment and average hours worked increased in the quarter). The ONS noted that productivity growth had been weak since the onset of the economic downturn (2008Q1) as a result of the relative strength of the labour market compared with GDP.

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Unemployment fell 53,000 in three months to March, total annual earnings growth 2.4%
17 May 2017

Employment increased by 122,000 (QOQ) in the three months to March (QOQ), to be 381,000 higher than a year earlier. Within the total, full-time workers rose by 405,000 (YOY), whilst and part-time workers fell 25,000 (YOY) (rounding errors). The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.8%, the highest since comparable records began in 1971.

Unemployment was 1.54mn in the three months to March, 53,000 fewer than the previous quarter and 152,000 down YOY. The unemployment rate fell to 4.6%, compared with 5.1% a year earlier. This was the lowest rate since 1975. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) that were unemployed. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) fell to 21.5%, the joint lowest since comparable records began in 1971.

Job vacancies remain strong. There were 777,000 job vacancies in the three months to April 2017 (sic), the highest since comparable records began in 2001. The latest figure was 22,000 higher (QOQ) and 32,000 higher (YOY).

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.4% (total pay, including bonuses) and by 2.1% (regular pay, excluding bonuses) in the three months to March (YOY). CPIH inflation was 2.3% in March (2.6% in April), so real earnings growth was effectively flat in March.

All in all, this report suggests the labour market remains very firm.

Read more
House prices inflation sharply lower at 4.1% in March, compared with 5.6% in February
16 May 2017

According to official data, UK house prices increased by just 4.1% (YOY) in March (sharply lower than 5.6% in February, revised down). This continues the general slowdown in the annual growth rate seen since mid-2016.

The UK’s four countries continued to show different inflation rates in March: England (4.4%), Wales (4.3%), Scotland (0.7%) and Northern Ireland (4.3% (2017Q1)). In England, there was, as always, a significant range across the regions: East of England (6.7%), East Midlands (6.7%), West Midlands (6.5%), North West (6.2%), Yorkshire & Humberside (4.0%), South East (3.8%), South West (2.8%), London (1.5%) and the North East (-0.4%).

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CPIH inflation rose to 2.6% in April
16 May 2017

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose to 2.6% (YOY) in April, compared with 2.3% in March. The inflation rate has been increasing following a period of relatively low inflation in 2015, and is the highest since June 2013. Air fares were the main contributors to April’s increase, reflecting the late timing of Easter, offsetting the downward effect in March 2017. Rising prices for clothing, vehicles excise duty and electricity also contributed to the higher rate.

The inflation rate for goods was 2.4% in April (2.5% in March), whilst the rate for services jumped to 2.8% in the month (2.2% in March). The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was 2.4% (1.9% in March).

On 10 November 2016, the ONS announced that CPIH (which includes an element of owner occupiers’ housing costs (OOH)) would be their preferred measure of inflation from March 2017. CPIH stands for the Consumer Prices Index, including owner-occupiers’ Housing costs. CPIH uses an approach called rental equivalence (the rent paid for an equivalent house) to measure OOH.

Producer output prices rose by 3.6% in the year to April, unchanged from March (table 3). March’s annual increase was the 15th consecutive rise after 2 years of falls. Even though output prices inflation is rising, “factory gate” inflation still remains fairly modest.

The inflation rates for producer input prices (materials and fuel bought by UK manufacturers for processing), were trending strongly upwards until January 2017, reflecting higher commodity prices and the effects of the weaker currency. But they have moderated since. The annual increase in April was 16.6%, down on March’s 17.4% (table 1). (It was 19.9% in January.) Prices of imported materials and fuels rose by 14.9% (YOY) in April compared with March’s 16.9%. (The annual increase was 20.2% in January.) April was the 3rd consecutive month the annual rate for imported input costs was lower than for total input costs, reflecting the recent strengthening of sterling. Crude oil increased 46.4% (YOY) in April (table 2).

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Trade (goods & services) deficit widened in March, to £4.9bn
11 May 2017

The total trade (goods & services) deficit was £4.9bn in March, compared with £2.6bn (revised) in February. The balances for both goods and services deteriorated, though most of the deterioration was in goods. The visible trade deficit rose to £13.4bn in March (£11.4bn in February), as the increase in exports (3.9% (MOM)) was well outstripped by the rise in imports (7.9% (MOM)). The services surplus was estimated to be £8.5bn in March (£8.8bn in February). Services exports were 42.5% of total exports in March. On a trend basis, services exports are increasing as a proportion of total trade.

Turning to the area analysis of the goods figures for March, the UK recorded deficits with EU and non-EU countries of £8.8bn and £4.7bn respectively. A geographical breakdown of services trade is not yet available. The largest country deficits in March were recorded with Germany (£2.8bn) and China (£2.1bn). There were also sizeable deficits with the Netherlands (£1.7bn), Norway (£1.6bn), Belgium-Luxembourg (£1.2bn), Italy (£0.8bn) and Spain (£0.7bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect. Surplus countries included the US (£0.7bn) and the Irish Republic (£0.4bn).

Turning to the quarterly data, the trade (goods & services) deficit widened to £10.5bn in 2017Q1 compared with £4.8bn in 2016Q4. The ONS commented “…this (widening) followed a sharp narrowing in 2016Q4, which was predominantly due to an increase in the exports of erratic commodities (non-monetary gold and aircraft)”. Total exports slipped 0.5% (QOQ), whilst imports rose 3.3%. But excluding “erratics”, exports rose 3.9% (QOQ), whilst imports increased by 4.2% (QOQ). The quarterly trade data are erratic (not least of all because of the “erratics”), but on a trend basis the deficit seems fairly flat.   

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Production output grew disappointing 0.1% in 2017Q1
11 May 2017

Industrial production (15% of GDP) increased by 0.1% (QOQ) in 2017Q1. Manufacturing rose 0.3% (QOQ), whilst mining and quarrying output (including North Sea oil) rose by 1.8% (QOQ) and water and allied industries were 0.7% (QOQ) up. But electricity and allied industries fell 4.3% (QOQ), reflecting the relatively mild weather, dragging down the overall industrial production indicator. Industrial production was estimated to have risen by 0.3% (QOQ) for the preliminary estimate of GDP of 2017Q1, so 0.1% marks a downgrade. But the ONS noted “…the downward impact of these revisions to previously published GDP was 0.02 percentage points, which does not impact the headline GDP growth rate to one decimal place”.

Production dipped 0.5% (MOM) in March. Electricity and allied industries fell 4.2% (reflecting the warmer-than-average temperatures) and manufacturing slipped 0.6% (MOM). But mining and quarrying increased 1.5% (MOM) and water and allied rose 0.6% (MOM). Turning to annual comparisons, production in March was up 1.4% (YOY), “…with growth in three of the four main sectors, with manufacturing providing the largest contribution, increasing by 2.3%”. 

Separately the ONS reported that construction output fell by 0.7% in March (MOM), but was still 2.4% higher than a year earlier. The ONS noted that “new housing experienced strong growth in March”, whilst “repair and maintenance provide the main downward pressure on construction output.” In 2017Q1 construction output rose 0.2% (QOQ), in line with the estimate included in the preliminary estimate of GDP for 2017Q1.

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March’s mortgage approvals slip further
4 May 2017

The number of mortgage approvals for house purchase slipped further in March to 66,837, compared with February’s 67,936, and were lower than the average for the previous six months (67,039), according to the Bank of England’s latest “Money and credit” press release (table I). They were also down on the recent peak of over 75,000 (January 2014). And they were well down on the monthly data recorded in the years prior to the recession, when mortgage approvals averaged 104,000 (2007), 119,000 (2006) and 100,000 (2005). 

The stock of total lending to individuals (secured and unsecured) rose to £1,529.1bn in March, of which 87% was secured on dwellings. The growth rate eased to 3.6% (YOY), compared with February’s 3.9% (table G). Within the total:
·         The amount outstanding on lending secured on dwellings rose to £1,331.7bn, to be up 2.7% (YOY), compared with February’s 3.0% (table H).
·         The amount outstanding on unsecured consumer credit rose to £197.4bn, an increase of 10.2% (YOY), compared with February’s 10.5% (table J). Annual growth is, therefore, still high but may be moderating. The amount outstanding was still down on the £208bn peak of September 2008.

Total loans (including overdrafts) to non-financial businesses was unchanged in March, whilst the growth rate was 2.4% (YOY). February’s growth rate had been 1.7% (table M). Within the total:
·         Loans to SMEs (defined as turnover of less than £25 million) rose by £0.4bn, whilst the growth rate was 1.6% (YOY).
·         Loans to large businesses fell by £0.4bn, whilst the growth rate was 2.8% (YOY).

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Parliamentary Committees: Evidence

Download Ruth Lea’s evidence to Parliamentary Committees of the House of Lords and Commons.