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

9th October 2017

Economic Insight - 9th October 2017

The UK economy: productivity growth continues to disappoint

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic developments (9 October):
Press Release

The UK economy: productivity growth continues to disappoint

Date: 9th October 2017

The UK economy: productivity growth continues to disappoint

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic developments:
  • The ONS confirmed that labour productivity (output per hour) fell 0.1% (QOQ) in 2017Q2, following a 0.5% fall in 2017Q1.
  • Productivity growth has been exceptionally weak since the Great Recession. In 2017Q2 it was slightly below the pre-recession peak (2007Q4).
  • It is expected that the OBR will revise down its medium-term productivity and GDP growth forecasts for the Autumn Budget (22 November), with worse public finances.
  • The ONS confirmed GDP growth of 0.3% (QOQ) for 2017Q2. External trade contributed to growth.
  • The Market surveys suggest continuing growth.

    In addition:
  • The latest Financial Centre Futures (FCF) report confirmed that London remained the top global financial centre (GFC), followed by New York, Hong Kong, Singapore and Tokyo.
  • The World Economic Forum (WEF)’s latest global competitiveness report concluded the UK was the world’s 8th most competitive economy (7th last year, overtaken by Hong Kong).
  • The fifth round of Brexit negotiations start on 9 October.
  • It seems unlikely the Commission will recommend that “sufficient progress” has been made on the first phase of the negotiations to move on to the second phase for the next European Council meeting (19-20 October).
Ruth Lea said, “The current economic recovery is now mature and, given near full employment and slowing net immigration, growth can only be expected to decelerate unless there is a major pick-up in productivity growth. Productivity growth must improve if reasonable growth, of around 1½% to 2%, is to continue.”
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


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25th September 2017

Economic Insight - 25th September 2017

The UK economy: still growing and fair prospects in 2018

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses economic developments and prospects for the rest of 2017 and 2018 (25 September):
Press Release

The UK economy: still growing and fair prospects in 2018

Date: 25th September 2017

The UK economy: still growing and fair prospects in 2018

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses economic developments and prospects for the rest of 2017 and 2018:
  • Recent economic indicators suggest growth is continuing, whilst inflation rates picked up in August, somewhat against trend.
  • Public sector net borrowing in the first 5 months of FY2017 was unexpectedly lower (albeit marginally) than in the equivalent period in FY2016.
  • GDP is expected to grow 1.6% in 2017 and 1.5% in 2018, after 1.8% in 2016, whilst CPI inflation should peak in 2017Q3 and thereafter moderate, supporting real incomes and hence consumption. The weaker pound and growing export markets should support exports. The labour market is expected to remain robust.
  • The Bank of England has been “talking up” a Bank Rate rise sooner rather than later. A rise from 0.25% to 0.5% could come as early as November, though the MPC is, arguably, more likely to delay until early-2018.

    In addition:
  • On Brexit, the Prime Minister proposed a time-limited “transitional” period, during which trade would continue under current terms and the UK would honour its financial commitments.
  • The OECD’s latest forecast updates were little changed. Their UK GDP growth forecast was unchanged (1.6% for 2017, 1.0% for 2018).
  • The Fed continues to tighten monetary policy. It confirmed recently that it would start cutting back on QE in October.
  • The ECB shows no sign of tightening policy, despite upgrading the growth prospects for the Eurozone.
Ruth Lea said, “The UK economy has held up well since the Brexit vote, even though consumption growth has been hit by a rise in inflation. Growth should continue into 2018 as real earnings recover. Moreover, trade should be supported by the weaker pound. There are good reasons to remain cautiously optimistic.”
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

Unemployment rate was 4.3% in three months to August, total annual earnings growth 2.2%
18 October 2017

Employment increased by 94,000 (QOQ) in the three months to August, to be 317,000 higher than a year earlier. Within the total, full-time men rose by 102,000 (YOY) and full-time women increased by 244,000, whilst part-time men fell by 31,000 (YOY) and part-time women rose by just 2,000. The increase in full-time employment was therefore 346,000, whilst part-time employment fell 29,000.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.1%, compared with 74.5% a year earlier:
·       The employment rate for men was 79.6%, compared with 79.4% a year earlier.
·       The employment rate for women was 70.7%, compared with 69.7% a year earlier. 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 1.44mn in the three months to August, 52,000 fewer than the previous quarter and 215,000 down YOY. The unemployment rate (the proportion of the labour force (those in work plus those unemployed) that were unemployed) was 4.3%, compared with 5.0% a year earlier. This was the joint lowest rate since 1975. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 21.4%, down slightly from a year earlier.

Job vacancies remain strong. There were 783,000 job vacancies in the three months to September 2017 (sic). This was just 3,000 higher (QOQ) but 32,000 higher (YOY).

Average weekly earnings for employees in Great Britain in nominal terms increased by a modest 2.2% for total pay (including bonuses) and 2.1% for regular pay (excluding bonuses) in the three months to August (YOY). The ONS estimated that annual real earnings fell by 0.3% for total pay and 0.4% for regular pay.

All in all, this report suggests the labour market remains fairly robust.

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House prices inflation was 5.0% in August
17 October 2017

According to official data, UK house prices increased by 5.0% (YOY) in August, compared with 4.5% (revised down) in July. The ONS commented that “the annual growth rate has slowed since mid-2016 but has remained broadly under 5% during 2017”. 

The UK’s four countries continued to show different inflation rates in August: England (5.3%), Wales (3.4%), Scotland (3.9%) and Northern Ireland (4.4% (2017Q2)). In England, there was, as always, a significant range across the regions: North West (6.5%), East Midlands (6.4%), East of England (6.4%), South West (6.4%), West Midlands (5.3%), South East (4.8%), Yorkshire & Humberside (4.8%), North East (3.7%) and London (2.6%).

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CPIH inflation rose to 2.8% in September, CPI inflation rose to 3.0%
17 October 2017

The CPIH (Consumer Prices Index, including owner-occupiers’ housing costs) is the ONS’s preferred measure of consumer prices inflation. The CPIH rose to 2.8% in September, compared with 2.7% (YOY) in August. It was last higher in March 2012. Rising prices for food and recreational goods, along with transport costs (which fell by less than they did a year ago), were the main contributors to the increase in the rate between August and September 2017. These upward effects were partially offset by downward contributions from a range of goods and services, in particular clothing prices, which rose by less than they did a year ago.

The inflation rate for goods rose to 3.2% (3.1% in August), whilst the rate for services was unchanged at 2.5%. The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) slipped a tad to 2.5% (2.6% in August). The CPI inflation rate rose to 3.0% in September (2.9% in August); it was also last higher in March 2012.

Turning to producer prices inflation, the rate of increase in factory gate prices, slipped to 3.3% (YOY) in September, compared with 3.4% in August (table 4). Upward contributions from energy were more than offset by downward contributions from other industries, resulting in a modest moderation in the annual rate for output prices.

The annual increase for input prices (total) was 8.4% in September, unchanged from August (table 1). Upward contributions from energy were offset by downward contributions from other industries, resulting in no change in the annual rate for input prices. The annual increase for input prices (imported) was 7.9% in September, also unchanged from August (table 2). Crude oil prices rose 4.7% (MOM) in September to be 16.6% higher (YOY) (table 3).

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Trade (goods & services) deficit widened in August to £5.6bn
10 October 2017

The total trade (goods & services) deficit increased to £5.6bn in August, compared with £4.2bn July (revised up). The visible trade deficit increased to £14.2bn in August (£12.8bn in July), as imports rose more than exports. The services surplus was estimated to be £8.6bn in August, unchanged from July.

Turning to the area analysis of the goods figures for August, the UK recorded deficits with EU and non-EU countries of £8.4bn and £5.8bn respectively. A geographical breakdown of services trade is not yet available. The largest country deficits in August were recorded with Germany (£2.7bn) and China (£2.8bn). There were also sizeable deficits with the Netherlands (£2.0bn), Norway (£1.2bn), Belgium-Luxembourg (£0.8bn), Italy (£0.8bn), Japan (£0.6bn) and Spain (£0.4bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect. Surplus countries included the USA (£0.9bn) and Ireland (£0.5bn).

Turning to the quarterly data, the deficit in goods and services widened to £13.2bn in the three months to August, compared with the previous three months (£7.0bn). Export fell by 1.4% (QOQ) whilst imports rose by 2.5% (QOQ). The goods deficit widened to £39.0bn (compared with the previous £32.0bn), whilst the services surplus increased marginally to £25.7bn (compared with £25.0bn).

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Production output rose 0.2% in August
10 October 2017

Industrial production (15% of GDP) grew by 0.2% (MOM) in August, to be 1.6% higher than a year earlier. Growth was mainly due to a 0.4% (MOM) increase in manufacturing (10% of GDP), which was 2.8% higher (YOY), whilst mining and quarrying (including North Sea output) fell 2.0% (MOM) and was down 6.0% (YOY). Electricity and allied industries and water and allied industries were both 0.4% (MOM) higher. 

In the three months to August industrial production grew by 0.9% (QOQ), with all four sectors growing with the largest contribution from manufacturing.

Separately the ONS reported that construction output grew by 0.6% in August (MOM), reflecting a rise in new work, and was 3.5% higher than a year earlier. But construction output contracted 0.8% (QOQ) in the three months to August, though the ONS said that it “remains at relatively high levels”.

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Labour productivity fell 0.1% in 2017Q2
6 October 2017

According to the ONS, output per hour (their main measure of labour productivity, “productivity hours”) fell 0.1% (QOQ, unrevised) 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. Labour productivity grew 0.2% (QOQ) in services, but fell 1.3% (QOQ) in manufacturing.

The ONS noted that total productivity growth has 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 was “slightly below the peak achieved in 2007Q4 immediately prior to the economic downturn” and 0.6% below the post-downturn peak (2016Q4).

Earnings and other labour costs growth outpaced productivity growth, resulting in unit labour costs (ULC) growth of 1.6% (YOY) in 2017Q2.

Read more
Markit Surveys for September mixed, but growth continues
4 October 2017

The much-followed Markit/CIPS surveys suggested manufacturing remained firm and services picked up, whilst construction weakened further.
·       The Markit/CIPS manufacturing PMI registered a firm 55.9 in September, down from August’s 4-month high of 56.7, but above its long-run average of 51.7. Companies reported that demand remained solid in both domestic and overseas markets. Growth of new export business remained amongst the best registered over the past 6½ years. (Data released on 2 October 2017.)
·       The Markit/CIPS construction PMI lost further momentum in September. The PMI was 48.1 in September, compared with August’s 51.1, and below the crucial 50.0 no-change threshold for the first time in 13 months. There were falls in both commercial and civil engineering activity. House building was the only broad area to report expansion. (Data released on 3 October 2017.)
·       The Markit/CIPS services PMI edged up in September to 53.6 (53.2 in August), and still well above the 50 no-change figure. Respondents reported a range of supportive economic fundamentals, including healthy labour market conditions and resilient consumer spending, but there were also reports of worries about the business outlook. Cost pressures had increased, reflecting higher staff costs, fuel bills and prices for imported items. (Data released on 4 October 2017.)
·       Markit commented “…the three PMI surveys put the economy on course for another subdued 0.3% expansion in the third quarter, but the fourth quarter could see even slower growth.”

Read more
August’s mortgage approvals slip
29 September 2017

The number of mortgage approvals for house purchase slipped in August to 66,580, compared with July’s 68,452, but were a tad higher than the average for the previous six months (66,367), according to the Bank of England’s latest “Money and credit” press release (table I). But they were 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 £1,553.7bn in August, of which 87% was secured on dwellings. The growth rate was 4.0% (YOY), unchanged from July (table G). Within the total:
·       The amount outstanding on lending secured on dwellings rose to £1,350.6bn, to be up 3.2% (YOY), compared with July’s 3.1% (table H).
·       The amount outstanding on unsecured consumer credit rose to £203.0bn, an increase of 9.8% (YOY), unchanged from July (table J). The amount outstanding was, however, still down on the £208bn peak of September 2008.

Total loans (including overdrafts) to non-financial businesses fell £5.2bn in August, whilst the growth rate was 3.1% (YOY). July’s growth rate was 4.2% (table M). Within the total:
·       Loans to SMEs (defined as turnover of less than £25 million) fell by £0.1bn, whilst the growth rate was 0.9% (YOY).
·       Loans to large businesses decreased by £5.1bn, after a £8.2bn increase in July, whilst the growth rate was 4.4% (YOY).

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Balance of payments (current account) deficit widened in 2017Q2
29 September 2017

The current account of the balance of payments showed a deficit of £23.2bn (4.6% of GDP) in 2017Q2, compared with a revised £22.3bn (4.4% of GDP) in 2017Q1. The quarterly data are erratic, but on a trend basis the current account deficit seems to be fairly flat. The deterioration in 2017Q2 reflected worsening balances on primary and secondary income, partly offset by a narrowing trade deficit, largely reflecting higher goods exports.

The components of the current account changed in 2017Q2 as follows:
·       The trade deficit (goods and services) decreased to £6.5bn compared with £8.9bn in 2017Q1. Exports rose 2.1% (QOQ) whilst imports increased by 0.5%.
·       Within total trade the visible trade deficit narrowed to £31.7bn (compared with £34.0bn in 2017Q1), as exports (up 3.5%, QOQ) rose more than imports (up 0.4%).
·       The services surplus was little changed at £25.2bn, compared with £25.1bn in 2017Q1. Exports and imports of services rose 0.6% (QOQ) and 0.7% (QOQ) respectively. 
·       The primary income (mainly investment income) deficit widened to £10.2bn in 2017Q2, compared with £8.8bn in 2017Q1. This was mainly due to foreign earnings on direct investment and portfolio investment in the UK increasing more than UK earnings on direct investment and portfolio investment abroad.
·       The secondary account (current transfers) deficit widened to £6.5bn (£4.6bn in 2017Q1), due to increased payments by general government.

In 2017Q2 the disparate performance of EU and non-EU transactions remained stark. Britain recorded a current account deficit of £23.3bn with EU countries, compared with a small surplus (£0.1bn) with non-EU countries.

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Services grew 0.5% in three months to July
29 September 2017

The ONS estimated that services output increased by 0.5% (QOQ) in the three months to July, to be 1.8% higher than a year earlier. The ONS said that this was the highest 3-month on 3-month estimate for 2017 so far.

Output, however, slipped by 0.2% (MOM) in July reflecting weaker motion pictures activity. This decrease followed a particularly strong June for the industry. Output in July was 1.5% higher than in July 2016.

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