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

15th August 2016

Economic Insight - 15th August 2016

The Bank’s pre-emptive stimulus package

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the Bank of England’s monetary stimulus package.
Press Release

The Bank’s pre-emptive stimulus package

Date: 15th August 2016

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the Bank of England’s monetary stimulus package.

The main points are:
  • The Bank announced further monetary stimulus on 4 August, as expected.
  • The package of measures was, however, more extensive than expected, comprising a cut in Bank Rate to 0.25%, a new Term Funding Scheme (TFS), the purchase of corporate bonds and a £60bn expansion of gilt purchases.
  • The monetary stimulus is primarily intended to support the economy, given its “weaker outlook” after the Brexit vote on 23 June 2016.
  • The Bank revised down its growth forecasts, though the economy is not expected to go into recession.
  • Anecdotal evidence and surveys post-referendum are mixed. There is evidence of weakening business confidence though retail sales and car sales are holding up well.
  • Eurostat confirmed that Eurozone GDP growth slowed to 0.3% (QOQ) in 2016Q2, from 0.6% in 2016Q1.
Ruth Lea said, “The overall impact on the real economy of the latest monetary policy measures is impossible to judge at this stage. The TFS is likely to be the most effective measure in terms of supporting the real economy, whereas the further driving down of interest rates will have very mixed results and risks further driving up asset prices.”

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

1st August 2016

Economic Insight - 1st August 2016

The economy grew well in 2016Q2: the Bank should wait for signs of slowdown before further monetary easing

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK and international economic developments.
Press Release

The economy grew well in 2016Q2: the Bank should wait for signs of slowdown before further monetary easing

Date: 1st August 2016

The economy grew well in 2016Q2: the Bank should wait for signs of slowdown before further monetary easing In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK and international economic developments. The main points are:

  • The UK economy performed well in 2016Q2. GDP rose by 0.6% (QOQ), whilst there was further progress in the labour market. Inflation remains well under control.
  • Surveys relating to activity in July have been mixed. July’s GfK consumer confidence barometer and IHS Markit’s flash composite output PMI both deteriorated badly, but the Bank of England’s Agents latest summary reported “business as usual” and Nationwide reported a solid increase in house prices in July.
  • The MPC is meeting on 4 August and further monetary easing is expected.
  • Chancellor Hammond has said he may “reset” economic policy in the Autumn Statement, but fiscal changes are not expected prior to the Autumn Statement.
  • GDP growth in the Eurozone slowed to 0.3% (QOQ) in 2016Q2, from 0.6% in 2016Q1. The French economy stalled.
  • US GDP rose a disappointing 1.2% (annualised, 0.3% not annualised) in 2016Q2. Expectations of a hike in interest rates this year seem to be weakening though the rate-setting Federal Open Market Committee (FOMC) seemed “to open the door” to tighter monetary policy at their July meeting.
  • The IMF shaved their forecasts of global growth in both 2016 and 2017, attributing the downgrade to the Brexit vote. This attribution seems overly harsh on the UK, to put it mildly, especially in the light of weaker growth in both the US and the Eurozone in 2016Q2. The IMF also downgraded the UK’s prospects. Ruth Lea said, “The economy grew well in 2016Q1 – by a better-than-expected 0.6%. There was little evidence of a pre-referendum slowdown. Under these circumstances, it seems advisable that the MPC should wait for signs of economic slowdown before pressing ahead with further monetary easing.”

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

123456789 (2015)(2014)

Comment, at a glance

GDP growth unrevised at 0.6% in 2016Q2
26 August 2016

GDP (second estimate) increased by an unrevised 0.6% in 2016Q to be 2.2% higher than a year earlier. This compares with a rise of 0.4% in 2016Q1 and 0.7% in 2015Q4. These figures suggest that there was no pre-referendum slowdown in activity (the referendum on EU membership was on 23 June, at the end of the quarter). The GDP level in 2016Q2 was 7.7% higher than the pre-recession peak (2008Q1). From peak (2008Q1) to trough (2009Q2) the economy shrank 6.3%. GDP per capita was 1.2% higher in 2016Q2 than in 2008Q1, having surpassed it in 2015Q2.

Growth was mainly driven by the services sector (79% of the economy), which rose by 0.5% (QOQ). Production (15% of output) also contributed to growth. It rose 2.1% (QOQ), with manufacturing growing by 1.8% and mining & quarrying rising by 1.9%. Construction output (6% of output) slipped 0.7%.

Turning to the expenditure side, the main driver of growth was household consumption, which increased 0.9% (QOQ). Gross fixed capital formation (GFCF) grew 1.4% (QOQ) and the ONS said investment was at its highest level since 2007Q4. It was 0.9% higher than a year earlier. But general government consumption slipped 0.2%. The trade balance in goods and services was a major drag on growth, with exports rising just 0.1% whilst imports rose 1.0%. Separately the ONS reported that business investment rose in 0.5% (QOQ) in 2016Q2, but was still 0.8% lower than a year earlier.  

Also separately, the ONS said the services sector grew by 0.2% (MOM) in June, to be 2.4% higher than a year earlier. Over the year the largest contribution came from “business services & finance”. 

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Public sector net borrowing surplus £1.0bn in July
19 August 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) showed a lower-than-expected surplus of £1.0bn in July 2016, modestly down on the surplus recorded in July 2015 (£1.2bn). The first payment (£0.3bn) under the Bank Corporation Tax surcharge scheme was received in July 2016, boosting corporation tax. Even though June’s (sic) borrowing figure had been lower than expected (and was, therefore, encouraging), it should be noted that the borrowing data for April and May had been poorer than expected.  

The cumulative total for PSNB for the first four months of FY2016 was £23.7bn, £3.0bn down (11%) on the £26.7bn recorded for the first four months of FY2015. The OBR forecast a total for FY2016 of £55.5bn (March Budget), compared with an outturn of £75.3bn for FY2015, an implied improvement of 26%. On current trends the March Budget forecast for FY2016 is almost certain to be missed. It is expected that the OBR will revise its forecasts in the Autumn Statement.

Public Sector Net Debt (PSND) was £1,604.2bn at the end of July 2016 (82.9% of GDP), compared with £1,568.9bn (83.8% of GDP) at end-July 2015. One of the previous Chancellor’s objectives was to reduce debt as a % of GDP over the forecast period.

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Unemployment falls further, total earnings growth 2.4% in 3 months to June
17 August 2016

Employment rose by 172,000 in the three months to June compared with the previous 3 months, to be 606,000 higher than a year earlier. Within the total, full-time workers and part-time workers rose by 374,000 and 231,000 respectively (YOY). (There are rounding errors.) The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, the highest since comparable records began in 1971.

Unemployment was 1.64m in the three months to June, 52,000 down on the previous quarter and 207,000 down YOY. The unemployment rate was 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 July (sic) there were 741,000 vacancies, down 7,000 (QOQ), but little changed from a year earlier. 

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.4% (including bonuses) and by 2.3% (regular pay, excluding bonuses) in the three months to June compared with a year earlier. The introduction of the mandatory National Living Wage (introduced 1 April) boosted earnings in April. CPI inflation in July was +0.6%, 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.

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House prices inflation rose to 8.7% in June
16 August 2016

House prices inflation rose to 8.7% (YOY) in June, compared with 8.5% in May (revised), continuing the strong growth seen since the end of 2013. There has been, 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 May: England (9.3%), Wales (4.9%), Scotland (4.6%) and Northern Ireland (7.8%). In England there was, as always, a significant range across the regions: East of England (14.3%), London (12.6%), South East (12.3%), South West (8.0%), East Midlands (7.9%), North West (6.6%), West Midlands (6.4%), Yorkshire & Humberside (5.5%), and the North East (1.5%). The pace of price increases in London is especially noticeable, after a period of relative softness. 

Average house prices rose by 1.0% (seasonally adjusted, MOM) in June. The annual inflation rate for first-time buyers was 8.6%, compared with 8.8% for former owner-occupiers (existing owners) (GB data only).

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CPI inflation rises to 0.6% in July
16 August 2016

July’s CPI annual inflation rate was 0.6%, compared with 0.5% in June. The ONS said that, though higher than in previous months, July’s CPI inflation was still relatively low historically. The main contributors to the increase in the rate were rising prices for fuels, alcoholic beverages and accommodation services, and a smaller fall in food prices than a year ago. The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was 1.3% in July, slightly lower June’s 1.4%. Separately the inflation rates for goods and services were minus 1.4% (-1.6% in June) and plus 2.7% (2.8% in June) respectively. 

Producer prices inflation is also trending higher. But “factory gate” inflation still remains well under control. Producer output prices rose 0.3% in the year to July 2016, compared with -0.2% (YOY) in June. “Core” factory gate prices (excluding food, beverages, tobacco & petroleum) rose 1.0% (YOY), higher than in June (0.7%). Input prices, materials and fuel bought by UK manufacturers for processing, are, moreover, picking up. They increased by 4.3% (YOY) (-0.5% in June). In the month of July crude oil prices rose 3.7% (MOM), whilst the prices of imported inputs are trending higher, probably reflecting the weaker currency.

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£5.1bn trade deficit in June, compared with £4.2bn in May
9 August 2016

The total trade (goods & services) deficit widened to £5.1bn in June, compared with £4.2bn in May (revised up). Monthly data are erratic but the trend seems to be fairly stable at present

Within total trade, the visible trade deficit rose to £12.4bn in June, compared with £11.5bn in May (revised up). Exports of goods increased by 4.0% (MOM), but imports were 5.2% higher. Within the goods total the oil deficit widened to £0.7bn, whilst the deficit on non-oil increased to £11.7bn The services surplus was estimated to be £7.3bn in June (unchanged). Services exports were 44% of total exports in June. On a trend basis, services exports are increasing as a proportion of total trade.

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 £4.2bn respectively. A geographical breakdown of services trade is not yet available.

The largest country deficits in June were recorded with Germany (£2.9bn) and China (£2.7bn). There were also sizeable deficits with the Netherlands (£1.4bn), Norway (£1.2bn), Belgium-Luxembourg (£1.0bn), Italy (£0.7bn), Spain (£0.6bn) and France (£0.6bn). 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 (£1.0bn) and the Irish Republic (£0.4bn).

The recorded share of UK goods exports going to the EU, which is also distorted by the Rotterdam-Antwerp Effect, was 51.1% in June.

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Production output rose 2.1% in 2016Q2
9 August 2016

Industrial production (15% of GDP) rose by 2.1% (QOQ) in 2016Q2, to be 1.8% higher than a year earlier. The largest contribution came from manufacturing (10% of GDP) which increased by 1.8%. In the three months to June production and manufacturing were 7.4% and 4.5% respectively below their 2008Q1 levels, when pre-recession GDP peaked.

Turning to the June figure, production was 0.1% higher (MOM), whilst manufacturing slipped by 0.3%, continuing the correction to the data after April’s jump. Of the other three components of industrial production, mining & quarrying (including oil & gas extraction) increased by 1.3%, electricity & gas output rose by 0.9% whilst water & related output rose by 0.5%. The ONS said that “very few” respondents had been affected by the uncertainty from the EU referendum vote of 23 June.

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Bank of England cuts Bank rate to 0.25% as part of package to stimulate economy, 4 August 2016

The MPC voted for a package of measures designed to provide additional support to growth and to achieve a sustainable return of inflation to the target.  This package comprises (of which the last three elements will be financed by the issuance of central bank reserves): 

  • 0.25% cut in Bank Rate to 0.25%.
  • A new Term Funding Scheme (TFS) to reinforce the pass-through of the cut in Bank Rate. The TFS will provide funding for banks at interest rates close to Bank Rate. This monetary policy action should help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that households and firms benefit from the MPC’s actions.  In addition, the TFS provides participants with a cost effective source of funding to support additional lending to the real economy, providing insurance against the risk that conditions tighten in bank funding markets. 
  • The purchase of up to £10bn of UK corporate bonds.
  • An expansion of the asset purchase scheme (“Quantitative Easing”) for UK government bonds of £60bn, taking the total stock of these asset purchases to £435bn. 

 The Bank did not rule out further stimulus.

 The Bank’s August “Inflation Report” contained a revised forecast. The forecast for the main variables is (the May forecast is in brackets):

  • GDP growth (%). 2016: 2.0 (2.0); 2017: 0.8 (2.3); 2018: 1.8 (2.3). The main change is, therefore, to growth for 2017, with good rebound for 2018.
  • CPI annual inflation (%). 2016Q3: 0.8 (0.8); 2017Q3: 1.9 (1.5); 2018Q3: 2.4 (2.1). CPI inflation is only modestly revised up in 2017 and 2018.
  • Unemployment rate (%). 2016Q3: 5.0 (5.1); 2017Q3: 5.4 (4.9); 2018Q3: 5.6 (4.9). Quite significant hikes to unemployment in 2017 and 2018.
  • Bank Rate (from forward market, %). 2016Q3: 0.3 (0.4); 2017Q3: 0.1 (0.5); 2018Q3: 0.1 (0.6). Significantly lower interest rate expectations for 2017 and 2018.

 

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June’s mortgage approvals slip
29 July 2016

Mortgage approvals for house purchase slipped in June to 64,766, compared with May’s 66,722, and were lower than the average for the previous six months (69,998), 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 data have tended to weaken since April, probably reflecting the imposition of the 3% stamp duty surcharge on second homes, which came into effect on 1 April 2016. Uncertainty over the EU referendum (23 June) may also have been a factor.   

The stock of total lending to individuals (secured and unsecured) rose to £1,484bn in June, of which over 87% was secured on dwellings. The growth rate was still fairly modest, at 4.1% (YOY) (table G). Within the total:
·         The amount outstanding on lending secured on dwellings rose to £1,298bn, to be up 3.3% (YOY) (table H).
·         The amount outstanding on unsecured consumer credit rose to £186bn, to be up a buoyant 10.3% (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 £443bn in June, compared with £439bn in May. The growth rate increased to 2.7% (YOY) (table M). Within the total:
·         Loans to large businesses increased to £281bn, whilst the growth rate rose to 3.4% (YOY).
·         Loans to SMEs (defined as turnover of less than £25 million) was broadly unchanged at £161.5bn and the growth rate was 1.7% (YOY).

 

Concerning net lending (excluding overdrafts) in June (table N, growth rates are not published):

·         Net lending to large businesses rose marginally (£0.2bn), as gross lending marginally exceeded repayments.

·         Net lending to SMEs was also up marginally (£0.7bn).

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GDP growth was 0.6% in 2016Q2
27 July 2016

GDP (preliminary estimate) increased by a greater-than-expected 0.6% in 2016Q2 to be 2.2% higher than a year earlier. This compares with a rise of 0.4% in 2016Q1 and 0.7% in 2015Q4. These figures suggest that there was no pre-referendum slowdown in activity (the referendum on EU membership was on 23 June, at the end of the quarter). The GDP level in 2016Q2 was 7.7% higher than the pre-recession peak (2008Q1). From peak (2008Q1) to trough (2009Q2) the economy shrank 6.3%.

Growth was driven by the services sector (79% of the economy), which rose by 0.5% (QOQ), and production (15% of output), which rose by 2.1%. Construction output (6% of output) slipped 0.4%. 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 0.1% (MOM) in May, after a 0.6% increase in April, to be 2.7% higher than a year earlier. Over the year the largest contributions came from business services & finance. 

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Parliamentary Committees: Evidence

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