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

14th August 2017

Economic Insight - 14th August 2017

A modest growth downgrade by the Bank and few signs of a rate hike any time soon

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest Bank forecasts: (14 August):
Press Release

A modest growth downgrade by the Bank and few signs of a rate hike any time soon

Date: 14th August 2017

A modest growth downgrade by the Bank and few signs of a rate hike any time soon

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest Bank forecasts: (14 August):
  • GDP growth was shaved down to 1.7% for 2017 (1.9% in May) and to 1.6% for 2018 (1.7% in May), but the forecast for 2019 was left unchanged at 1.8%.
  • CPI inflation is expected to peak at 2.75% in 2017Q4 (more specifically, at 3% in October) and thereafter fall towards the 2% target.
  • The unemployment rate forecasts were cut, with the implication of less spare capacity than thought previously and, arguably, more pressure on wages.
  • Earnings are expected to grow by 3% in 2018, which would support household consumption.

  • In addition:
  • The 10th anniversary of the start of the Great Financial Crisis on 9 August 2007 is discussed, along with the subsequent Great Recession and policy responses by the Authorities in the UK, the US and the Eurozone.
  • The UK, US and some of Eurozone economies have recovered well since the crises. But Italy’s GDP is expected to be 6% lower in 2017 than in 2007, and Greece’s 25% lower.
Ruth Lea said, “The Bank’s forecasts were still quite positive, despite a modest downgrades to growth for 2017 and 2018. The Bank seems to believe that growth will continue, albeit at a moderate pace. There are few indications the MPC is preparing to raise rates for, say, another 12 months.”
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

31st July 2017

Economic Insight - 31st July 2017

UK growth modest in 2017Q2 but business surveys and a robust labour market point to firmer growth ahead

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the GDP growth figures for 2017Q2: (31 July):
Press Release

UK growth modest in 2017Q2 but business surveys and a robust labour market point to firmer growth ahead

Date: 31st July 2017

UK growth modest in 2017Q2 but business surveys and a robust labour market point to firmer growth ahead

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the GDP growth figures for 2017Q2: (31 July):
  • GDP grew by a much-as-expected 0.3% in 2017Q2, continuing the below trend growth of the first half of 2017, after above trend growth in the second half of 2016.
  • Growth was driven by higher services output, whilst industrial production and construction disappointingly fell.

  • In addition:
  • Inflationary pressures appear to be weakening. CPI inflation fell to 2.6% in June and producer prices inflation is easing.
  • Retail sales grew 1.5% (QOQ) in 2017Q1.
  • The labour market is robust. Employment growth is still strong, the unemployment rate is now 4.5% (the lowest since 1975) and vacancies are buoyant. But earnings growth is weak in nominal terms and falling in real terms.
  • Public borrowing was higher in June 2017 than in June 2016, reflecting higher debt interest payments. Public sector net debt was 87.4% of GDP at end-June 2017, compared with 83.8% at end-June 2016.
  • The OBR’s latest Fiscal Risks Report was a timely warning that the UK’s public finances still need to be managed prudently.
  • Recent ONS data suggested that real household incomes have been stagnant (overall) for non-retired households since the Great Recession, but have risen for retired households. The ONS also showed that income inequality has fallen since the Great Recession.
  • The IMF’s latest update confirmed that the global recovery was “on track”. But they downgraded growth for the US and the UK, whilst raising growth for the Eurozone and Japan.
  • Specifically, the IMF revised down UK GDP growth for 2017 from 2.0% (in April) to 1.7% (in July), but this was still higher than their January forecast.
Ruth Lea said, “Growth was modest in 2017Q2, but it could well pick up in the second half of this year. Inflationary pressures are easing (which should support real incomes growth), business surveys are buoyant and the labour market remains remarkably robust. Moreover, expectations of higher interest rates have waned. The next MPC meeting is on 3 August and it is not expected that rates will be increased.”
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

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Comment, at a glance

Retail sales increased 0.3% in July
17 August 2017

Retail sales (volume, GB) grew by a modestly greater-than-expected 0.3% (MOM), reflecting a strong rise in food store sales, to be just 1.3% higher than a year earlier. Growth therefore remains “cautious”.

Looking at the 3 months on 3 months for July, retail sales in both value and volume terms rose by 0.6% (QOQ). This suggests that prices are beginning to flatten, after rising reflecting the depreciation of sterling.   

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Labour productivity fell 0.1% in 2017Q2
16 August 2017

According to the ONS, the flash estimate of output per hour (their main measure of labour productivity, “productivity hours”) fell 0.1% (QOQ) in 2017Q2, after a decrease of 0.5% (QOQ) in 2017Q1. The fall reflected a relatively weak increase in GDP in 2017Q2 (0.3%), combined with a strong growth in total hours worked, which was driven predominantly by growth in employment.

The ONS noted that total 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. Productivity in 2017Q2 “remains at around the same level as its pre-downturn peak”.

 

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Unemployment rate fell to 4.4% in three months to June, total annual earnings growth 2.1%
16 August 2017

Employment increased by 125,000 (QOQ) in the three months to June, to be 338,000 higher than a year earlier. Within the total, full-time men rose by 165,000 (YOY), whilst full-time women increased by 216,000, whilst part-time men fell by 46,000 (YOY), whilst part-time women rose by only 3,000. The increase in full-time employment was therefore 381,000, whilst part-time employment fell 43,000.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.1%, the highest since comparable records began in 1971:
·       The employment rate for men was 79.8%. The rate has not been higher since March to May 1991.
·       The employment rate for women was 70.5%, the highest female employment rate since comparable records began in 1971. The increase in the employment rate for women is partly due to ongoing changes to the State Pension age for women resulting in fewer women retiring between the ages of 60 and 65.

Unemployment was 1.48mn in the three months to June, 57,000 fewer than the previous quarter and 157,000 down YOY. The unemployment rate (the proportion of the labour force (those in work plus those unemployed) that were unemployed) was 4.4%, compared with 4.9% a year earlier. This was the lowest rate since 1975. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 21.3%, down from 21.6% for a year earlier and the lowest since comparable records began in 1971.

Job vacancies remain strong. There were 768,000 job vacancies in the three months to July 2017 (sic). The latest figure was 16,000 lower (QOQ), reflecting fewer vacancies reported by businesses employing less than 10 people, but 23,000 higher (YOY).

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.1% for both total pay (including bonuses) and regular pay (excluding bonuses) in the three months to June (YOY). The ONS estimated that annual real earnings fell by 0.5%, for both measures (including bonuses and excluding bonuses).

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

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House prices inflation was 4.9% in June, compared with 5.0% in May
15 August 2017

According to official data, UK house prices increased by 4.9% (YOY) in June, compared with 5.0% (revised up) in May. The ONS commented that “the annual growth rate has slowed since mid-2016 but has remained broadly around 5% during 2017”. 

The UK’s four countries continued to show different inflation rates in June: England (5.2%), Wales (3.6%), Scotland (2.9%) and Northern Ireland (4.4% (2017Q2)). In England, there was, as always, a significant range across the regions: East of England (7.2%), East Midlands (7.1%), North West (5.5%), South West (5.3%), South East (4.9%), Yorkshire & Humberside (4.9%), West Midlands (4.7%), London (2.9%) and the North East (2.5%).

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CPIH inflation unchanged at 2.6% in July
15 August 2017

The CPIH (Consumer Prices Index, including owner-occupiers’ housing costs) is the ONS’s preferred measure of consumer prices inflation. The CPIH was 2.6% (YOY) in July, unchanged from June and lower than expected. The price of motor fuel continued to fall but its downward impact on the CPIH inflation rate was offset by smaller upward contributions from a range of goods and services including clothing, household goods, gas and electricity, and food and non-alcoholic beverages.  The CPI inflation rate was also 2.6% (YOY), the same as the CPIH rate, in July and also unchanged from June.

The inflation rate for goods was 2.7% in July (2.6% in June), whilst the rate for services slipped to 2.4% in the month (2.5% in June). The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was unchanged at 2.4%.

Turning to producer prices inflation, the rate of increase in factory gate prices continues to ease reflecting the fact that manufacturing input costs have largely fallen MOM since January 2017. Producer output (factory gate) prices rose by 3.2% in the year to July, compared with 3.3% in June (table 4). Prices rose just 0.1% (MOM) in July.

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, partly reflecting the recent strengthening of sterling (especially against the dollar). The annual increase in July fell back to 6.5%, compared with June’s 10.0% (table 1). And prices of imported materials and fuels rose by 6.0% (YOY) in July compared with June’s 10.2% (table 2). Crude oil prices rose just 0.1% (MOM) in July to be 7.6% higher (YOY) (table 3).

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Trade (goods & services) deficit widened in June to £4.6bn
10 August 2017

The total trade (goods & services) deficit was £4.6bn in June, compared with £2.5bn in May (revised down). The visible trade deficit increased to £12.7bn in June (£11.3bn in May), as imports rose 3.3% (MOM), whilst exports slipped 0.7% (MOM). The services surplus was estimated to be £8.2bn in June compared with £8.8bn in May.

Turning to the area analysis of the goods figures for June, the UK recorded deficits with EU and non-EU countries of £8.3bn and £4.5bn respectively. A geographical breakdown of services trade is not yet available. The largest country deficits in June were recorded with Germany (£2.8bn) and China (£2.4bn). There were also sizeable deficits with the Netherlands (£1.6bn), Norway (£1.0bn), Belgium-Luxembourg (£1.0bn), Italy (£0.7bn) and Spain (£0.5bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect. Surplus countries included Ireland (£0.5bn).

Turning to the quarterly data, the deficit in goods and services was £8.9bn in 2017Q2, barely changed from 2017Q1 (£8.8bn). Export and imports both rose 0.5% (QOQ). The goods deficit widened a tad to £34.4bn (2017Q2) from £34.3bn (2017Q1) as the deficit with the EU narrowed to £24.0bn (£24.6bn in 2017Q1) whilst the non-EU deficit widened to £10.4bn (£9.6bn in 2017Q1). The services surplus was unchanged at £25.4bn. On a trend basis the deficit in total trade (goods and services) is fairly stable at present.

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Production output rose 0.5% in June
10 August 2017

Industrial production (15% of GDP) grew by 0.5% (MOM) in June, to be 0.3% higher than a year earlier. Manufacturing (10% of GDP) was flat (MOM), with the largest downward contribution coming from transport equipment, though it was 0.6% up (YOY). The biggest boost to growth in June was from mining and quarrying output (including North Sea oil and gas), which rose 4.1% (MOM), reflecting an absence of maintenance that usually takes place in June. In addition, use of the re-developed Schiehallion oil field and use of the new Kraken oil field are contributing to the increase in oil production. Both are expected to increase UK Continental Shelf (UKCS) production over the longer-term. Water and allied industries were 0.8% (MOM) higher, but electricity and allied industries decreased 0.9% (MOM).

In 2017Q2 industrial production was 0.4% (QOQ) lower than in 2017Q1, reflecting a 0.6% fall in manufacturing (in turn reflecting a fall transport equipment as for the month of June). Mining and quarrying rose 0.4% (QOQ) and water and allied industries rose 0.1% (QOQ), whilst electricity and allied industries fell 0.2% (QOQ). The ONS said the decrease of 0.4% (QOQ) for 2017Q2 was unchanged from the estimate used for the preliminary estimate of GDP.

Separately the ONS reported that construction output slipped by 0.1% in June (MOM), contracting for the third consecutive month, but was still 0.9% higher than a year earlier. An increase in new work was more than offset by a fall in repair and maintenance. The ONS said construction output fell by 1.3% (QOQ) in 2017Q2, compared with a fall of 0.9% estimated for the preliminary estimate of GDP. But the latest figure had no impact on quarterly GDP growth to 1 decimal place.

Read more
Markit Surveys for July mixed, but growth continues
3 August 2017

The much-followed Markit/CIPS surveys suggested manufacturing was firmer, construction was weaker whilst services were little changed.
·       The Markit/CIPS manufacturing PMI ticked up to 55.1 in July, compared with 54.2 in June, boosted by strong export orders. There were strong inflows of new work, higher levels of production and improved job creation, whilst cost pressures eased. (Data released on 1 August 2017.)
·       The Markit/CIPS construction PMI lost further momentum in July. The PMI was 51.9 in July, compared with June’s 54.8, and the weakest production performance since August 2016. Lower levels of commercial construction were a key factor holding back overall business activity growth. (Data released on 2 August 2017.)
·       The Markit/CIPS services PMI showed marginal improvement in July. The PMI was 53.8 in July (53.4 in June), and still well above the 50 no-change figure. Staff recruitment continued to gain traction, reaching its strongest pace since the start of 21016. But, looking ahead, business optimism remained subdued. (Data released on 3 August 2017.)
·       Markit said the three surveys, taken together, were “broadly consistent with economic growth of just over 0.3%, putting the country on course for another steady but sluggish expansion in the third quarter”. 

Read more
June’s mortgage approvals weaker
31 July 2017

The number of mortgage approvals for house purchase weakened in June to 64,684, compared with May’s 65,109, and were lower than the average for the previous six months (66,656), 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 £1,544.8bn in June, of which 87% was secured on dwellings. The growth rate was 4.2% (YOY), little changed from May’s 4.1% (table G). Within the total:
·       The amount outstanding on lending secured on dwellings rose to £1,344.0bn, to be up 3.1% (YOY), compared with May’s 3.0% (table H).
·       The amount outstanding on unsecured consumer credit rose to £200.9bn, an increase of 10.0% (YOY), compared with May’s 10.4% (table J). The amount outstanding was still down on the £208bn peak of September 2008.

Total loans (including overdrafts) to non-financial businesses grew £1.1bn in June, whilst the growth rate was 2.9% (YOY). May’s growth rate was 3.0% (table M). Within the total:
·       Loans to SMEs (defined as turnover of less than £25 million) rose by just £0.4bn, whilst the growth rate was 1.2% (YOY).
·       Loans to large businesses increased by £0.6bn, whilst the growth rate was 3.9% (YOY).

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GDP growth was 0.3% in 2017Q2
26 July 2017

GDP (preliminary estimate) increased by a much-as-expected 0.3% in 2017Q2 to be 1.7% higher than a year earlier. This compares with a rise of 0.2% in 2016Q1, 0.6% in 2016Q2, 0.5% in 2016Q3, 0.7% in 2016Q4 and 0.2% in 2017Q1. GDP per head was estimated to have increased by 0.1% in 2017Q2, to be 1.0% higher than a year earlier.

The growth in 2017Q2 was driven by services (79% of GDP), which grew 0.5% (QOQ) compared with 0.1% in 2017Q1. The largest contributions to services growth were from retail trade and film production and distribution.

Industrial production (15% of GDP) fell 0.4%, within which manufacturing (10% of GDP) fell 0.5%, mining and quarrying (2% of GDP) fell by 0.9% and water and allied (1% of GDP) fell by 0.4%. But electricity and allied (1.5% of GDP) rose 0.3%. Construction (6% of GDP) decreased by 0.9%. The preliminary estimate is based on output data and there is no breakdown by expenditure components.

Separately, the ONS said the services sector grew by 0.2% (MOM) in May, to be 2.4% higher than a year earlier. The largest contribution to MOM growth came from business services and finance (which contributed 0.23 percentage points). On the ONS’s preferred 3-month comparison, services increased by 0.4% (QOQ) in the 3-months to May to be 2.4% up YOY.  The ONS commented that all four components increased in the 3 months (distribution, hotels and catering; transport, storage and communication; business services and finances; Government and other services).

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Parliamentary Committees: Evidence

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