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

13th June 2016

Economic Insight - 13th June 2016

The UK economy: encouraging signs but treat them cautiously
 
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest developments in the UK economy.      
Press Release

The UK economy: encouraging signs but treat them cautiously

Date: 13th June 2016

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest developments in the UK economy.      
 
On trade with the EU, the main points are:
  • Recent data for April for retail sales, industrial production, exports of goods and construction output were all very, and unexpectedly, firm.
  • The Market surveys for May looked a little firmer. And NIESR estimated that GDP grew by 0.5% in the 3 months to May compared with 0.4% in the 3 months to April.
  • These data suggest that the economy may be picking up in 2016Q2, despite the upcoming referendum on EU membership, after a weak 2016Q1.
  • The pound has held its own since the referendum date was announced (20 February) and gilts have been very firm.
 Other points to note are:
  • No policy changes are expected at this week’s Fed and MPC meetings.
  • The OECD downgraded its GDP growth forecast for the UK in its June forecast to 1.7% (2016) and 2.0% (2017), though this is still firmer than for the Eurozone.
  • Both the OECD and the IMF are concerned that world growth is sluggish and urge further structural reforms and activist fiscal and monetary policies.    
Ruth Lea said, “The recent UK monthly indicators have been surprisingly strong and suggest economic growth is firming after weakness at the beginning of the year. Of course, monthly data can be erratic and so they must be treated with caution. But they are encouraging.”

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

David Marshall, Director of Communications
020 7012 2432, 07502 285 835
davidmarshall@arbuthnot.co.uk

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


Download full article

6th June 2016

Economic Insight - 6th June 2016

Trade with the EU is important, but is in relative decline
 
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the UK’s trade with the EU and includes updates on the UK, the US and Greece.      
Press Release

Trade with the EU is important, but is in relative decline

Date: 6th June 2016

Trade with the EU is important, but is in relative decline

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the UK’s trade with the EU and includes updates on the UK, the US and Greece.

On trade with the EU, the main points are:
• The EU share of UK exports is in secular decline.
• The goods share is falling and, whilst the services share is not falling so markedly, services are weighted towards non-EU markets and growing faster than goods, thus pulling down the overall EU share of goods and services.
• Using the conventional trade accounts, the EU exports to GDP ratio was about 12% in 2015, but on a trade in value added basis it could be as low as 9-10%.
• Given the UK’s huge trade deficit with the EU, the overall impact on GDP is negative. The overall impact of non-EU trade is positive.
• The UK runs substantial goods deficits with the EU in finished manufactures (including cars), in semi-manufactures and in food and related products (including wine).
• The UK runs surpluses in services with both the EU (20% of the total) and the non-EU (80% of the total, of which the USA was 30%).

Other points to note are:
• Recently released UK economic data suggest growth is slowing in 2016Q2, possibly reflecting uncertainty ahead of the EU referendum (23 June).
• Recently US data have been mixed. But, given the very weak labour report (May), it is unlikely the Federal Open Markets Committee (FOMC) will raises rates at the forthcoming meeting (14-15 June).
• The recent Eurogroup meeting agreed to the next tranche (€10.3bn) of bailout funds for Greece.

Ruth Lea said, “Of course, exports to the EU are important. But the EU share of UK exports had fallen to below 44% by 2015, compared with 52% in 2004. Moreover, the share can only fall further given relatively stagnant EU markets and the increasing significance of services trade, which is weighted towards non-EU markets. This is not to dismiss the importance of EU markets, but to keep them in perspective.”

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

David Marshall, Director of Communications
020 7012 2432, 07502 285 835
davidmarshall@arbuthnot.co.uk  

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

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Comment, at a glance

Public sector net borrowing £9.7bn in May
21 June 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) was £9.7bn in May 2016, higher than expected and only marginally lower than the £10.1bn recorded in May 2015. Whilst receipts from income, corporation and VAT taxes increased (YOY), spending was also higher.

The cumulative total for PSNB for the first two months of FY2016 was £17.9bn, little changed from the first two months of FY2015 (£17.8bn). The OBR forecast a total for FY2016 of £55.5bn (for the March Budget), compared with an outturn of £74.9bn (revised) for FY2015. If the public finances continue to fail to improve for FY2016 vis-à-vis FY2015, the March Budget forecast for FY2016 will clearly be missed.

Public Sector Net Debt (PSND) was £1,606.9bn at the end of May 2016 (83.7% of GDP), compared with £1,557.3bn (also 83.7% of GDP) at end-May 2015. One of the Chancellor’s objectives is to reduce debt as a % of GDP.

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Unemployment slips, regular earnings growth 2.3% in 3 months to April
15 June 2016

Employment rose by 55,000 in the three months to April compared with the previous 3 months, to be 461,000 higher than a year earlier. Within the total, full-time workers and part-time workers rose by 304,000 and 157,000 respectively (YOY). The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.2%, the joint highest since comparable records began in 1971.

Unemployment was 1.67m in the three months to April, 20,000 down on the previous quarter and 148,000 down YOY. The unemployment rate fell to 5.0%, the lowest since the three months to October 2005. The rate was 5.5% a year earlier. Unemployment now appears to have resumed falling. Vacancies remained buoyant, though there was some slippage in the latest figures.  In the three months to May (sic) there were 749,000 vacancies, down 9,000 (QOQ), though 17,000 higher than a year earlier. 

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.0% (including bonuses) and by 2.3% (excluding bonuses) compared with a year earlier. The introduction of the mandatory National Living Wage (introduced 1 April) boosted earnings in April. CPI inflation in May was +0.3%, so earnings growth is easily outstripping prices inflation.

All in all, this jobs report is in line with other indicators suggesting the economy has firmed in the second quarter, after some weakness in the first quarter.

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House prices inflation slipped to 8.2% in April
14 June 2016

House prices inflation slipped to 8.2% (YOY) in April compared with 8.5% (YOY) in March, according to the ONS. The imposition of the 3% stamp duty surcharge on second homes (1 April) seemed to have cooled demand in April.

The inflation rate has fluctuated significantly since the Great Recession. House prices recovered strongly in 2010 but then fell back, recording negative inflation rates in 2011. The rate firmed over the next three years, reaching a local peak of over 9% in autumn 2014, but then weakened, dipping to just over 5% in summer 2015. Since then the rate has tended to firm.

The UK’s four countries showed very different inflation rates in March: England (9.1%), Wales (1.7%), Scotland (3.3%) and Northern Ireland (5.9%). In England there was, as always, a significant range across the regions: London (14.5%), East England (13.6%), South East (12.3%), East Midlands (7.8%), West Midlands (7.1%) South West (6.0%), Yorkshire & Humberside (6.0%), North West (5.8%), and the North East (0.1%). The pace of price increases in London is especially noticeable, after a period of relative softness. 

Average house prices rose by 0.6% (seasonally adjusted, MOM) in April. The annual inflation rate for first-time buyers was 8.2%, compared with 8.4% for owner-occupiers (existing owners) (GB data only).

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CPI inflation +0.3%, unchanged in May
14 June 2016

May’s CPI annual inflation rate was +0.3%, unchanged from April. The ONS said that, with the exception of March (when CPI inflation was 0.5% and influenced by the timing of Easter), the headline inflation rate has been 0.3% for all months in 2016.   

The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was 1.2% in May, also unchanged from April. Separately the inflation rates for goods and services were minus 1.8% (-1.6% in April) and plus 2.6% (2.4% in April) respectively. Market expectations of the timing of the first interest rate hike have now slipped into 2020.

Despite the commentary about deflation in the UK, there is no sign of a potential, and damaging, “deflationary cycle” developing. Regular earnings growth (excluding bonuses) was 2.1% in the three months to March, whilst total earnings (including bonuses) were up 2.0%. Moreover, compositional changes could be depressing the average earnings rate.  

Producer output prices fell 0.7% in the year to May 2016, unchanged from April (YOY). “Core” factory gate prices (excluding food, beverages, tobacco & petroleum) rose just 0.5% (YOY), also unchanged from April (YOY). “Factory gate” inflation is, therefore, well under control. Input prices, materials and fuel bought by UK manufacturers for processing, fell by 3.9% (YOY) in May compared with -7.0% (YOY) in April. Crude oil prices were down 20.5% (YOY).

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£3.3bn trade deficit in April, compared with £3.5bn in March
9 June 2016

The total trade (goods & services) deficit narrowed to £3.3bn in April, compared with £3.5bn in March (revised down). Monthly data are erratic but the trend seems to be improving modestly at present

Within total trade, the visible trade deficit slipped to £10.5bn in April, compared with £10.6bn in March (revised down). Exports of goods rose by 9.1% (MOM), to not far from their all-time high set in June 2013, whilst imports were 5.9% higher. Within the goods total the oil deficit narrowed to £0.5bn, whilst the deficit on non-oil was little changed at £10.0bn The services surplus was estimated to be £7.2bn in April, compared with £7.1bn in March. Services exports were 42% of total exports in April and, on a trend basis, are increasing as a proportion of total trade.

Turning to the area analysis of the goods figures for April, the UK recorded deficits with EU and non-EU countries of £7.9bn and £2.6bn respectively. A geographical breakdown of services trade is not yet available.

The largest country deficits in April were recorded with Germany (£2.6bn) and China (£1.4bn). There were also sizeable deficits with the Netherlands (£1.3bn), Belgium-Luxembourg (£1.1bn), Norway (£0.7bn), Italy (£0.7bn), Spain (£0.5bn) and France (£0.2bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect reflecting UK exports routed through these ports for other destinations. Surplus countries included the US (£1.2bn) and the Irish Republic (£0.3bn).

 The recorded share of UK goods exports going to the EU, which is also distorted by the Rotterdam-Antwerp Effect, was 47.0% in April. Exports (goods) to the EU were £12.2bn, whilst imports from the EU were £20.1bn, 65% higher. The equivalent figures for Germany were £2.7bn and £5.3bn. Imports from Germany were, therefore, twice as large as exports to Germany.

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Production output jumped 2.0% in April
8 June 2016

Industrial production (15% of GDP) jumped by 2.0% (MOM) in April and was 1.6% higher than a year earlier. Within the total, manufacturing output (10% of GDP) jumped 2.3% (MOM) and was 0.8% up (YOY). The largest contribution to the monthly increase in manufacturing came from the manufacture of pharmaceutical products & preparations, which rose by 12.5%, the largest rise since April 2009. Of the other three components of industrial production, mining & quarrying (including oil & gas extraction) slipped 0.3% (MOM), but electricity & gas output and water & related output both increased.

In April production and manufacturing were 9.4% and 6.4% respectively below their 2008Q1 levels, when pre-recession GDP peaked. Monthly data are erratic, but April’s figure suggests production may be stabilising after some weakness since autumn 2015.   

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Markit Surveys for May suggest continuing growth, albeit modest
3 June 2016

The much-followed Markit/CIPS surveys for May showed a picture of continuing, but modest, growth. Manufacturing and services both firmed a little, whilst construction weakened. The uncertainties surrounding the upcoming referendum on the UK’s membership of the EU (23 June) were cited as depressing activity.  

·         The Markit/CIPS manufacturing PMI edged above the critical no-change mark of 50.0 in May, to be just 50.1 compared with 49.4 in April. Factors cited as dragging on growth were the softer global economic growth, challenging exchange rates and ongoing client and market uncertainties. The latter partly reflected the EU referendum. (Data released on 1 June 2016.)

·         The Markit/CIPS construction PMI fell further to 51.2 in May, compared with April’s 52.0, pointing to the slowest expansion of business activity for almost 3 years. All three broad areas (commercial building, residential construction and civil engineering) were “stuck in a low gear”. The overall index was, however, still above the 50.0 no-change threshold. (Data released on 2 June 2016.)

·         The Markit/CIPS Services Business Activity Index slightly firmed to 53.5 in May, compared with April’s 38-month low of 52.3. Some respondents commented that the recent introduction of the National Living Wage (NMW) had impacted on hiring, whilst firms increased their charges in May, linked in some cases to the higher transfer of higher labour costs resulting from the NMW. (Data released on 3 June 2016.)

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April’s mortgage approvals ease further
1 June 2016

Mortgage approvals for house purchase eased further in April to 66,250, compared with March’s 70,305, and were lower than the average for the previous six months, 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). April’s data were probably affected by the imposition of the 3% stamp duty surcharge on second homes, coming into effect on 1 April 2016.  

The stock of total lending to individuals (secured and unsecured) reached £1,475bn in April, of which nearly 88% was secured on dwellings. The growth rate was still fairly modest, at 4.0% (YOY) (table G). Within the total:
·         The amount outstanding on lending secured on dwellings rose marginally to £1,291.9bn, to be up 3.2% (YOY) (table H).
·         The amount outstanding on unsecured consumer credit rose to £183.2bn, to be up a buoyant 9.6% (YOY) (table J). But the amount outstanding is still down on the £208bn peak of September 2008.

Total loans (amounts outstanding, including overdrafts) to non-financial businesses slipped further to £437.1bn in April, compared with £438.5bn in March. The growth rate was 0.7% (YOY) (table M). Within the total:
·         Loans to large businesses fell further to £275.9bn, whilst the growth rate was +0.2% (YOY).
·         Loans to SMEs (defined as turnover of less than £25 million) was unchanged at £161.2bn and the growth rate was +1.4% (YOY).

 Concerning net lending (excluding overdrafts) in April (table N, growth rates are not published):
·         Net lending to large businesses rose a marginal £0.1bn, as gross lending was marginally greater than repayments.
·         Net lending to SMEs was flat. 

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GDP growth 0.4% in 2016Q1
26 May 2016

GDP (second estimate) increased by an unrevised 0.4% in 2016Q1 to be 2.0% higher than a year earlier. This compares with a rise of 0.6% in 2015Q4 and 0.4% in 2015Q3. The GDP level in 2016Q1 was 7.2% higher than the pre-recession peak (2008Q1), whilst GDP per capita was only 1.1% higher than in 2008Q1. From peak (2008Q1) to trough (2009Q2) the economy shrank 6.1%.

Growth was more than driven by the services sector (79% of the economy), which rose by 0.6% (QOQ). Production (15% of output) fell by 0.4%. Manufacturing fell by 0.4%, mining & quarrying fell by 2.3%, whilst electricity et al rose by 0.4% and water et al rose 2.3%. Construction output (6% of output) slipped 1.0%.

Turning to the expenditure side, the main driver of growth was household consumption, which increased 0.7% (QOQ). General government consumption was 0.4% higher whilst gross fixed capital formation (GFCF) rose 0.5%, following the 1.1% fall in 2015Q4. The trade balance in goods and services was a major drag on growth, with exports falling by 0.3% whilst imports rose 0.8%.

Separately, the ONS said the services sector slipped by 0.1% (MOM) in March, to be 2.6% higher than a year earlier. Over the year the largest contribution came from “business services & finance”.  

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Public sector net borrowing £7.2bn in April
24 May 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) was a greater-than-expected £7.2bn in April 2016, only marginally lower than the £7.5bn recorded in April 2015. Corporation tax receipts disappointed.

The total PSNB for FY 2015 was revised up to £76.0bn (compared with the initial estimate of £74.0bn). The OBR forecast a PSNB for FY2015 of £72.2bn (3.8% of GDP) in the March 2016 Budget.

Public Sector Net Debt (PSND) was £1,596.0bn at the end of April 2016 (83.3% of GDP); an increase of £49.6bn (or 0.1 percentage point of GDP) compared with April 2015. This followed the missing of the Chancellor’s supplementary fiscal rule, whereby PSND should fall as a % of GDP in FY2015.

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Parliamentary Committees: Evidence

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