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

18th July 2016

Economic Insight - 18th July 2016

The Authorities begin to get to grips with Brexit: post-referendum update

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses political and economic developments since early July.
Press Release

The Authorities begin to get to grips with Brexit: post-referendum update

Date: 18th July 2016

The Authorities begin to get to grips with Brexit: post-referendum update

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses political and economic developments since early July.

The main points are:
  • Theresa May was appointed Prime Minister on 13 July. Her main economic appointments were Philip Hammond (Chancellor), David Davis (Secretary of State for Leaving the EU), Liam Fox (Secretary of State for International Trade) and Greg Clark (Secretary of State for Business, Energy and Industrial Strategy).
  • The MPC, unexpectedly, did not cut the Bank Rate on 15 July. It is expected that there will be monetary easing, probably including a rate cut, at the next MPC meeting (4 August).
  • There is survey and anecdotal evidence that confidence has fallen significantly since the Brexit vote, which may lead to a reduction in economic activity. The ONS’s first economic data for the months of 2016Q3 are not released until mid-August and it will be well into September/October before there are sufficient data to judge economic performance during the quarter.
  • There remain uncertainties about the Brexit timetable. David Davis has suggested triggering exit proceedings “before or by the start of next year”, with a likely exit from the EU around December 2018.
  • Australia and Canada have indicated their interest in trade agreements with the UK. This is encouraging. The Commonwealth is an underused resource.
Ruth Lea said, “The earlier-than-expected appointment of a new Prime Minister, who has hit the ground running, thankfully removes much political uncertainty post-referendum. And there are encouraging signs that the Authorities are getting to grips with the challenges posed by Brexit.”


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

4th July 2016

Economic Insight - 4th July 2016

Post-Brexit trading options for the UK

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the UK’s trading options post-Brexit.
Press Release

Post-Brexit trading options for the UK

Date: 4th July 2016

Post-Brexit trading options for the UK

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the UK’s trading options post-Brexit.

The main points are:
  • There are three main options for the UK’s post-Brexit trading relationship with the EU:
    • Staying in the Single Market, but this would oblige the UK to adopt the EU’s Single Market regulations and retain freedom of movement of people.
    • A bespoke trade agreement with the EU, retaining tariff-free trade on goods and agreeing a comprehensive system of “regulatory equivalence” (akin to the “passport”) for financial services. The UK has considerable negotiating power. It has a huge deficit on goods with the EU and it is in the interests of European Economic Area (EEA) financial institutions currently located in London that an arrangement akin to the “passport” is agreed.
    • Trading under the rules of the World Trade Organisation (WTO), as a default.
  • The EU’s trade agreements with 3rd countries would continue for the UK on Brexit, providing parties agreed.
  • Outside the EU’s Customs Union, the UK would be able to negotiate its ow trade agreements with preferred partners, including the USA and Commonwealth countries.
  • The UK could apply to re-join European Free Trade Association (EFTA), not just for trade with EFTA members, but also to have access to EFTA’s suite of trade agreements (providing parties agreed).
  • Outside the EU’s Customs Union, the UK would decide its own external tariff and could slash tariffs on items including agricultural products and clothing & footwear.

Other points to note are:
  • Post-Brexit, the UK could amend/repeal the most irksome business regulations (assuming not in Single Market).
  • The UK will also be control immigration from the EU (assuming not in Single Market).
  • The UK will cease to be a net contributor to the EU Budget.

Ruth Lea said, “The UK has many challenges and opportunities ahead as it prepares to leave the EU. Post-Brexit the UK’s relationship with the EU will be one of mutually beneficial trade and inter-governmental cooperation. EU trade is important to the UK and a bespoke UK-EU trade agreement is in everybody’s interests.”

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

12345678 (2015)(2014)

Comment, at a glance

Public sector net borrowing £7.8bn in June
21 July 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) was a less-than-expected £7.8bn in June 2016, £2.2bn lower than in June 2015, after two months of higher-than-expected borrowing.

The cumulative total for PSNB for the first three months of FY2016 was £25.6bn, £2.3bn down (8%) on the £27.9bn recorded for the first three months of FY2015. The OBR forecast a total for FY2016 of £55.5bn (March Budget), compared with an outturn of £75.3bn (revised) for FY2015, an implied improvement of over 26%. On current trends the March Budget forecast for FY2016 is almost certain to be missed.

Public Sector Net Debt (PSND) was £1,620.7bn at the end of June 2016 (84.0% of GDP), compared with £1,573.1bn (84.1% of GDP) at end-June 2015. One of the previous Chancellor’s objectives was to reduce debt as a % of GDP.

Read more
Unemployment falls further, regular earnings growth 2.2% in 3 months to May
20 July 2016

Employment rose by 176,000 in the three months to May compared with the previous 3 months, to be 624,000 higher than a year earlier. Within the total, full-time workers and part-time workers rose by 401,000 and 223,000 respectively (YOY). The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.4%, the highest since comparable records began in 1971.

Unemployment was 1.65m in the three months to May, 54,000 down on the previous quarter and 201,000 down YOY. The unemployment rate fell to 4.9%, compared with 5.6% a year earlier. The last time it was lower was for July-September 2005. Vacancies remained buoyant, though there was some slippage in the latest figures. In the three months to June (sic) there were 747,000 vacancies, down 10,000 (QOQ), though 15,000 higher than a year earlier. 

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.3% (including bonuses) and by 2.2% (excluding bonuses) in the three months to May compared with a year earlier. The introduction of the mandatory National Living Wage (introduced 1 April) boosted earnings in April. CPI inflation in June was +0.5%, so earnings growth is easily outstripping prices inflation.

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

 

Read more
House prices inflation 8.1% in May
19 July 2016

House prices inflation was 8.1% (YOY) in May, unchanged from April, continuing the strong growth seen since the end of 2013. There is, however, some evidence that the imposition of the 3% stamp duty surcharge on second homes (1 April) has subdued the market.

The UK’s four countries showed very different inflation rates in March: England (8.9%), Wales (3.6%), Scotland (4.0%) and Northern Ireland (5.9%). In England there was, as always, a significant range across the regions: London (13.6%), South East (12.9%), East England (12.8%), East Midlands (7.9%), South West (7.4%), West Midlands (6.7%) North West (4.3%), Yorkshire & Humberside (3.8%), and the North East (3.2%). The pace of price increases in London is especially noticeable, after a period of relative softness. 

Average house prices rose by 1.1% (seasonally adjusted, MOM) in May. The annual inflation rate for first-time buyers was 8.3%, compared with 8.2% for owner-occupiers (existing owners) (GB data only).

Read more
CPI inflation rises to 0.5% in June
19 July 2016

June’s CPI annual inflation rate was 0.5%, compared with 0.3% in May. The ONS said that, though higher than in previous months, June’s CPI inflation was still relatively low historically. Rises in air fares, and prices for motor fuels and a variety of recreational and cultural goods & services were the main contributors to the increase in the rate.    

The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was 1.4% in June, compared with 1.2% in May. Separately the inflation rates for goods and services were minus 1.6% (-1.8% in May) and plus 2.8% (2.6% in May) respectively.

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 2.3% in the three months to April, whilst total earnings (including bonuses) were up 2.0%. Moreover, compositional changes could be depressing the average earnings rate.  

Producer output prices fell 0.4% in the year to June 2016, compared with -0.6% (YOY) in May. “Core” factory gate prices (excluding food, beverages, tobacco & petroleum) rose just 0.7% (YOY), slightly more than in May (0.6%). “Factory gate” inflation is, therefore, well under control. Input prices, materials and fuel bought by UK manufacturers for processing, fell by 0.5% (YOY) (-4.4% in May). Crude oil prices rose 7.5% (MOM) in June to be 11.1% down (YOY).

Read more
£2.3bn trade deficit in May, compared with £2.0bn in April
8 July 2016

The total trade (goods & services) deficit widened to £2.3bn in May, compared with £2.0bn in April (revised down). Monthly data are erratic but the trend seems to be improving modestly at present

Within total trade, the visible trade deficit rose to £9.9bn in May, compared with £9.4bn in April (revised down). Exports of goods fell by 8.2% (MOM), after an 8.1% jump in April, whilst imports were 4.7% lower. Within the goods total the oil deficit narrowed to £0.3bn, whilst the deficit on non-oil increased to £9.6bn The services surplus was estimated to be £7.6bn in May, compared with £7.5bn in April. Services exports were 45% of total exports in May and, on a trend basis, are increasing as a proportion of total trade.

Turning to the area analysis of the goods figures for May, the UK recorded deficits with EU and non-EU countries of £7.3bn and £2.6bn respectively. A geographical breakdown of services trade is not yet available.

The largest country deficits in May were recorded with Germany (£2.5bn) and China (£2.1bn). There were also sizeable deficits with the Netherlands (£1.3bn), Belgium-Luxembourg (£0.8bn), Italy (£0.6bn), Spain (£0.6bn), Norway (£0.5bn) and France (£0.4bn). 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 (£0.5bn).

The recorded share of UK goods exports going to the EU, which is also distorted by the Rotterdam-Antwerp Effect, was 48.0% in May. UK exports (goods) to the EU were £11.4bn, whilst imports from the EU were £18.8bn, 65% higher. The equivalent figures for Germany were £2.6bn and £5.1bn. Imports from Germany were, therefore, nearly twice as large as UK exports to Germany.

Read more
Production output slipped 0.5% in May
7 July 2016

Industrial production (15% of GDP) slipped by 0.5% (MOM) in May, after April’s 2.1% jump, and was 1.4% higher than a year earlier. The May figure should be regarded as a correction. Within the total, manufacturing output (10% of GDP) also slipped 0.5% (MOM) and was 1.7% up (YOY). The largest contribution to the monthly decrease in manufacturing came from the manufacture of pharmaceutical products & preparations, which corrected by 6.5% having increased by 9.0% in April. Of the other three components of industrial production, mining & quarrying (including oil & gas extraction) was little changed (-0.1%), electricity & gas output fell by 2.9% whilst water & related output rose 1.6%.

In the three months to May production and manufacturing were 8.0% and 4.9% respectively below their 2008Q1 levels, when pre-recession GDP peaked. Monthly data are erratic, but taking the April and May figures together suggested production may be stabilising after some weakness since autumn 2015.  

Read more
Markit Surveys for June show a mixed picture
5 July 2016

The much-followed Markit/CIPS surveys for June showed a mixed picture. Manufacturing firmed, whilst construction contracted and services slowed:
·         The Markit/CIPS manufacturing PMI improved to 52.1 in June (the highest since January), compared with 50.4 in May. The improvement was underpinned by a solid acceleration in inflows of new work. There was “ongoing strength” in domestic orders and a marginal uptick in new export business. Most of the responses were received before the EU referendum on 23 June 2016. (Data released on 1 July 2016.)
·         The Markit/CIPS construction PMI, however, fell further to 46.0 in May (the weakest performance in seven years) compared with May’s 51.2. Residential construction was the worst performing sub-category, whilst commercial building saw a sharp loss in momentum. Civil engineering was broadly stable. The overall index was below the 50.0 no-change threshold. Some respondents attributed the downturn to uncertainty ahead of the EU referendum. (Data released on 4 July 2016.)
·         The Markit/CIPS Services Business Activity Index weakened to 52.3 in June (matching April’s 38-month low), compared with May’s 53.5. Respondents often cited uncertainty ahead of the referendum as weighing on workloads and incoming business. (Data released on 5 July 2016.)

Read more
Near record balance of payments current deficit in 2016Q1
30 June 2016

The current account of the balance of payments showed a deficit of £32.6bn (6.9% of GDP) in 2016Q1, compared with £34.0bn (7.2% of GDP) in 2015Q4. The figure for 2015Q4 was a record quarterly deficit both in terms of £bn and as a % of GDP since quarterly records began in 1955. By any standards, the outturn for 2016Q1 was shockingly high.

The components of the current account changed in 2016Q1 as follows:
·         The trade (goods and services) deficit widened to £12.0bn (from £11.6bn) as the rise in exports was less than the rise in imports.
·         But the primary account (mainly investment income) deficit narrowed to £14.9bn (from £15.1bn), as debits fell more than credits.
·         And the secondary account (current transfers) deficit also narrowed to £5.7bn (from £7.3bn), as payments fell more than receipts.

In 2016Q1 the disparate performance of EU and non-EU transactions remained stark. Britain recorded a current account deficit of £29.2bn with EU countries, with the goods deficit alone standing at £23.5bn. The primary income and secondary income deficits were £9.0bn and £2.6bn respectively. The services surplus was £5.9bn, giving an overall trade deficit (goods & services) of £17.6bn.

With non-EU countries there was also a current account deficit, but it was “only” £3.4bn in 2016Q1. A services surplus (£16.3bn) offset the goods deficit (£10.8bn) to give an overall trade surplus of £5.6bn. But there were deficits in both primary income (£5.9bn), and secondary income deficit (£3.1bn).   

The EU share of UK total credits was 43.4% in 2016Q1, comfortably exceeded by the non-EU share (56.6%). The EU share is in secular decline.

 

Read more
GDP growth unchanged at 0.4% in 2016Q1
30 June 2016

GDP growth was unrevised at 0.4% (QOQ) in 2016Q1, compared an increase of 0.7% (revised) in 2015Q4. GDP was 2.0% up on a year earlier.

Growth was mainly driven by the services sector (79% of the economy), which rose by 0.6% (QOQ). But production (15% of output) fell by 0.2% (manufacturing was also down 0.2%). Construction output (6% of output) decreased 0.3%.

Turning to the expenditure side, the main driver of growth was household consumption, which increased 0.7% (QOQ). However, the saving ratio firmed to 5.9% in 2016Q1 compared with the previous quarter’s 5.8%, supported by higher property income and employee compensation (real personal disposable income (households & NPISH) increased by 2.0% (QOQ)). General government consumption was 0.5% higher whilst gross fixed capital formation (GFCF) slipped 0.1%. The trade balance in goods and services was a drag on growth, with exports falling 0.4% whilst imports rose 0.1%.

Separately, the ONS reported that services rose by 0.6% (MOM) in April, to be 3.0% higher than a year earlier, suggesting growth was firm at the beginning of 2016Q2. The ONS also reported that business investment disappointingly decreased by 0.6% in 2016Q1, to be 0.8% lower than a year earlier.

Read more
May’s mortgage approvals pick up
29 June 2016

Mortgage approvals for house purchase picked up in May to 67,042, compared with April’s 66,205, but were lower than the average for the previous six months (70,598), 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). May’s data suggest a part-normalisation after the fall in April, which was 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 £1,478bn in May, 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 £1,294bn, to be up 3.2% (YOY) (table H).
·         The amount outstanding on unsecured consumer credit rose to £184bn, to be up a buoyant 9.9% (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 picked up to £439bn in May, compared with £437bn in April. The growth rate was 1.1% (YOY) (table M). Within the total:
·         Loans to large businesses increased to £277bn, whilst the growth rate was +0.8% (YOY).
·         Loans to SMEs (defined as turnover of less than £25 million) was unchanged at £161bn and the growth rate was +1.5% (YOY).

Concerning net lending (excluding overdrafts) in April (table N, growth rates are not published):
·         Net lending to large businesses rose a marginal £3bn, as gross lending exceeded repayments.
·         Net lending to SMEs was up marginally (£0.3bn).

Read more

Parliamentary Committees: Evidence

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