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

11th December 2017

Economic Insight - 11th December 2017

Brexit negotiations: European Commission satisfied “sufficient progress” made to proceed to phase 2

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses recent Brexit developments (11 December):
Press Release

Brexit negotiations: European Commission satisfied “sufficient progress” made to proceed to phase 2

Date: 11th December 2017

Brexit negotiations: European Commission satisfied “sufficient progress” made to proceed to phase 2

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses recent Brexit developments (11 December):
  • On 8 December the European Commission agreed with the Prime Minister that “sufficient progress” had been made on phase 1 of the Brexit negotiations (on EU citizens’ rights, the Irish-Northern Irish border and the financial settlement) to recommend proceeding to phase 2 (aspects of the future UK-EU relationship).
  • It is expected that the European Council will agree to proceeding to phase 2 negotiations at their summit of 14-15 December.
  • Phase 2 negotiations are expected to focus on the transition period after Brexit and the framework of the future UK-EU relationship.
  • It is likely that “formal” trade talks will begin after Brexit, when the UK is legalistically a third country.

    In addition:
  • Recent indicators suggest growth is continuing, if not modestly firming.
  • Net immigration slowed again in the year ending June 2017, partly reflecting the fall in gross immigration from the EU following the UK’s Brexit referendum.
  • OECD global forecasts were little changed in November. The OECD remains the gloomiest of the major forecasters concerning the UK’s economic prospects.
Ruth Lea said, “The agreement by the European Commission and the UK Government that phase 2 of the Brexit negotiations should proceed is, assuming the European Council’s endorsement, another step towards an orderly withdrawal from the EU. Compromises were made on both sides, but that is only to be expected.”
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

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk


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27th November 2017

Economic Insight - 27th November 2017

Autumn Budget: weaker growth, and higher public spending and borrowing

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Autumn Budget (22 November):
Press Release

Autumn Budget: weaker growth, and higher public spending and borrowing

Date: 27th November 2017

Autumn Budget: weaker growth, and higher public spending and borrowing

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Autumn Budget (22 November):
  • The OBR’s economic growth forecasts were revised down, reflecting more pessimistic productivity growth prospects.
  • Fiscally, the Budget was more expansionary than expected, including extra funding for the NHS and housing.
  • Public sector net borrowing (PSNB) in FY 2017 was revised down reflecting the better-than-expected outcomes so far this financial year. But it was revised significantly higher from FY2018 to FY2021 reflecting a combination of forecasting changes (notably lower GDP) and the government’s expansionary tax-spending policy changes.
  • Public sector net debt (PSND) was revised down reflecting the reclassification of English Housing Associations from the public to the private sector, but the debt-GDP ratios were projected higher.
  • The Chancellor’s fiscal mandate (cyclically-adjusted PSNB to be below 2% of GDP by FY2020) was met and the supplementary target (PSND as a % of GDP to be falling in FY2020) was also met. But the overall fiscal objective of balancing the books by “the middle of the next decade” looks very unlikely to be achieved on current policies.

    In addition:
  • Public borrowing in the seven months to October was £38.5bn, compared with £42.6bn recorded for the first seven months of FY2016.This was the lowest year-to-date net borrowing since 2007.
  • GDP (second estimate) increased by 0.4% in 2017Q3 (unrevised) to be 1.5% higher than a year earlier. Growth was largely driven by services, though industrial production rose 1.1% (QOQ). On the expenditure side, household consumption rose by 0.6% (QOQ) and Gross Fixed Capital Formation rose 0.2%, but the trade balance widened significantly as exports decreased by 0.7% whilst total imports increased by 1.1%.
Ruth Lea said, “The Budget was surprisingly expansionary, with higher spending reinforced by net tax giveaways, which contributed to the higher borrowing forecasts. Whilst the Chancellor met his fiscal targets, the objective of “balancing the books” now seems to be slipping ever further – possibly to 2030 or beyond.”
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

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk


Download full article

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Comment, at a glance

Retail sales increased 0.8% in 3 months to November
14 December 2017

Retail sales (volume, GB) grew by 0.8% (QOQ) in the three months to November, to be 1.0% higher than a year earlier. The ONS commented “…the underlying pattern in the retail industry…remains one of growth”.

Volume sales grew 1.1% (MOM) in November, and were 1.6% higher than in November 2016. Household goods stores showed strong growth in the month, reportedly helped by “Black Friday” (24 November). There is probably some residual seasonality in the data. Store price inflation was 3.1% (YOY) in November, with price increases across all store types.

The ONS added that online sales values jumped 10.2% (YOY) in November, accounting for 17.0% of all retail spending (excluding automotive fuel). The ONS commented “…online sales have continued to increase showing a change in consumer habits from shopping in-store”.

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Unemployment rate was 4.3% in three months to October, total annual earnings growth 2.5%
13 December 2017

Employment slipped by 56,000 (QOQ) in the three months to October, but was 325,000 higher than a year earlier. Within the total, full-time men rose by 155,000 (YOY) and full-time women increased by 183,000, whilst part-time men fell by 48,000 (YOY) but part-time women rose by 35,000. The increase in full-time employment was therefore 338,000 (YOY), whilst part-time employment fell 13,000.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.1%, compared with 75.3% in the previous three  months (QOQ), but higher than 74.4% a year earlier:
·       The employment rate for men was 79.4%, compared with 79.1% a year earlier.
·       The employment rate for women was 70.8%, compared with 69.8% 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 1.43mn in the three months to October, 26,000 fewer than the previous quarter and 182,000 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 4.8% 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 21.5%, compared with 21.3% in the previous three months, but lower than a year earlier (21.7%).

Job vacancies remain strong. There were 798,000 job vacancies in the three months to November 2017 (sic). This was 14,000 higher (QOQ) and 45,000 higher (YOY). The level of job vacancies is comfortably the highest since comparable records began in 2001.

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.5% for total pay (including bonuses) and by 2.3% for regular pay (excluding bonuses) in the three months to October (YOY). The ONS estimated that annual real earnings fell by 0.2% including bonuses and by 0.4% excluding bonuses.

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

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House prices inflation was 4.5% in October
12 December 2017

According to official data, UK house prices increased by 4.5% (YOY) in October, compared with 4.8% (revised down) in September. Prices fell 0.5% in the month (MOM). 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 October: England (4.7%), Wales (4.5%), Scotland (2.8%) and Northern Ireland (6.0% (2017Q3)). In England, there was, as always, a significant range across the regions: East Midlands (7.0%), South West (6.7%), East of England (6.1%), West Midlands (5.2%), South East (4.6%), North West (3.9%), Yorkshire & Humberside (3.3%), North East (2.4%) and London (2.1%).

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CPIH inflation unchanged at 2.8% in November, CPI inflation rises to 3.1%
12 December 2017

The CPIH (Consumer Prices Index, including owner-occupiers’ housing costs) is the ONS’s preferred measure of consumer prices inflation. CPIH inflation was unchanged at 2.8% in November. But the CPI inflation rate was 3.1% in November, up on the less-than-expected 3.0% recorded for October. The CPI rate was last higher in March 2012.  

The largest upward contribution to both the CPIH and CPI rates came from air fares which fell in November (MOM), but by less than a year ago. Rising prices for a range of recreational and cultural goods and services also had an upward effect. Falling prices of “miscellaneous” goods and services provided the largest offsetting downward contribution.

The inflation rates for goods and services were both unchanged at 3.3% and 2.4% respectively. The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was also unchanged at 2.5%.

Turning to producer prices inflation, the rate of increase in factory gate prices (output prices) was 3.0% (YOY) in November, compared with 2.8% in October (table 4). The annual increase for input prices (total) was 7.3% in November compared with October’s 4.8% (which had shown a sharp fall compared with September’s 8.3%) (table 1). All industries provided upward contributions to both input and output annual inflation; the largest contributors to the change in the annual rates were crude oil and petroleum products respectively. Within input prices, crude oil prices rose 7.6% (MOM) in November to be 27.5% higher YOY (table 3).

The annual increase for imported input prices was 7.4% in November, compared with October’s 4.1% (table 2). Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight. Note that sterling firmed slightly in November, helping to slow the inflation rate of imported goods. The sterling effective exchange rate (EER) was 0.5% (MOM) higher in November to be 1.3% up on a year earlier.

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Trade (goods & services) deficit modestly widens in October to £1.4bn
8 December 2017

The total trade (goods & services) deficit increased to £1.4bn in October, compared with £1.1bn September (revised down). The visible trade deficit rose to £10.8bn in October (£10.5bn in September), as exports rose 1.1% (MOM) whilst imports increased 1.6% (MOM). The services surplus was estimated to be £9.4bn in October, slightly higher than September’s £9.3bn (revised up).  

In October, exports of goods and services were £30.2bn (56% of total trade) and £23.5bn (44% of total trade) respectively. Services share of total trade is on a rising trend.

Turning to the area analysis of the goods figures for October, the UK recorded deficits with EU and non-EU countries of £8.4bn and £2.4bn respectively. A geographical breakdown of services trade is not yet available. The largest country deficits in October were recorded with Germany (£3.1bn) and China (£2.1bn). There were also sizeable deficits with the Netherlands (£1.6bn), Norway (£1.0bn), Belgium-Luxembourg (£1.1bn), Italy (£0.7bn) and Spain (£0.4bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect. Surplus countries included the USA (£1.2bn), Ireland (£0.4bn) and Korea (£0.4bn).

Turning to the quarterly data, the deficit in goods and services narrowed to £5.0bn in the three months to October, compared with the previous 3 months (£7.8bn). The goods deficit narrowed to £32.9bn (compared with the previous quarter’s £34.5bn), whilst the services surplus increased to £27.9bn (compared with £26.8bn). The narrowing of the goods deficit mainly reflected an improvement in the trade balance with non-EU countries (£9.0bn, down from £11.9bn), whilst the EU visible deficit worsened to £23.9bn (£22.7bn in the previous 3 months). The 3 months to October visible deficit with Germany alone was £8.4bn.

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Production output rose 1.2% in 3 months to October
8 December 2017

In the three months to October industrial production grew by 1.2% (QOQ), mainly reflecting a 1.2% (QOQ) rise in manufacturing. Production was 2.6% higher than a year earlier, whilst manufacturing was 3.1% higher.  

Industrial production (15% of GDP) was flat (MOM) in the month of October, though 3.6% higher than a year earlier. In the month mining and quarrying rose 2.7%, manufacturing rose 0.1%, and water and allied industries rose 1.4%. But electricity and allied industries fell 3.3% reflecting the mild weather. Within manuafacturing, car production grew 4.6% (MOM) in October to match the record index level reached in July 2017. Manufacturing output (10% of GDP) was 3.9% higher than in October 2016. 

Separately the ONS reported that construction output fell by 1.7% in October (MOM), reflecting a fall in “all new work”, and was 0.2% down on a year earlier. Output contracted 1.4% (QOQ) in the three months to October, but was 1.6% higher (YOY) and the ONS said that it “remains at relatively high levels”.

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Markit Surveys for November firm, growth continues
5 December 2017

The much-followed Markit/CIPS surveys suggested manufacturing and construction picked up in November, whilst services remained firm, albeit slowing.
·       The Markit/CIPS manufacturing PMI registered a strong 58.2 in November, up on October’s reading of 56.6, and its highest level since August 2013. The expansion was broad-based by sub-sector, with consumer, intermediate and investment goods producers all registering output growth. There were reports that the historically weak exchange rate continued to boost export competitiveness. (Data released on 1 December 2017.)
·       The Markit/CIPS construction PMI was firmer in November. The PMI was 53.1 in November, the strongest for five months, compared with October’s 50.8. House-building projects were again the primary growth engine, whilst commercial and civil engineering activity continued to decline. (Data released on 4 December 2017.)
·       The Markit/CIPS services PMI eased in November, after October’s 6-month high. The PMI was 53.8 in November, compared with October’s 55.6, but well above the 50 no-change figure. Respondents attributed higher levels of activity to a further solid upturn in new work. Input costs continued to rise, and at an accelerated pace in November. (Data released on 5 December 2017.)
·       Markit commented “…the survey data are so far consistent with the economy growing at a quarterly rate of 0.45%, in the closing months of 2017.”

 

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October’s mortgage approvals slip further
29 November 2017

The number of mortgage approvals for house purchase slipped to 64,575 in October, compared with September’s 66,111, and were weaker than the average for the previous six months (66,676), according to the Bank of England’s latest “Money and credit” press release (table I). They were, moreover, down on the recent peak of over 75,000 (January 2014). They were also 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 £1,562.1bn in October, of which 87% was secured on dwellings. The growth rate was 4.0% (YOY), unchanged from September (table G). Within the total:
·       The amount outstanding on lending secured on dwellings rose to £1,356.8bn, to be up 3.2% (YOY), unchanged from September (table H).
·       The amount outstanding on unsecured consumer credit rose to £205.3bn, an increase of 9.6% (YOY), compared with September’s 9.8% (table J). The amount outstanding was, however, still a tad down on the £208bn peak of September 2008.

Total loans (including overdrafts) to non-financial businesses rose £0.6bn in October, whilst the growth rate was 2.0% (YOY). September’s growth rate was 2.6% (table M). Within the total:
·       Loans to SMEs (defined as turnover of less than £25 million) fell by £0.4bn, whilst the growth rate was 0.5% (YOY).
·       Loans to large businesses increased by £1.0bn, whilst the growth rate was 2.9% (YOY).

 

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Services grew 0.4% in 2017Q3
23 November 2017

The ONS estimated that services output increased by 0.4% (QOQ) in 2017Q4, to be 1.4% higher than a year earlier. The ONS said the business services and finance sector made the largest contribution to the quarterly growth.

Output rose 0.1% (MOM) in September, supported by growth in the motion pictures business, to be 1.2% higher than in September 2016.

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GDP growth confirmed at 0.4% in 2017Q3
23 November 2017

GDP (second estimate) increased by 0.4% in 2017Q3 to be 1.5% higher than a year earlier. This compares with rises of 0.3% in both 2017Q1 and 2017Q2. GDP per head was estimated to have increased by 0.3% in 2017Q3 (unrevised), to be around 1.0% higher than a year earlier.

Beginning with the industrial breakdown, growth in 2017Q3 was largely driven by services (79% of GDP) which grew 0.4% (QOQ), the same rate as in 2017Q2. It remained the largest contributor to GDP growth, with much of the growth coming from business services and finance.

Industrial production (15% of GDP) rose 1.1%, within which manufacturing (10% of GDP) also increased 1.1%, after a weak second quarter. In addition to the manufacturing growth, mining and quarrying increased by 2.1%, electricity and allied increased by 1.1% and water and allied increased by 0.7%. Construction (6% of GDP) contracted 0.9%, the second consecutive quarter of decline, but was still well above its pre-downturn peak.

Turning to the expenditure side, household consumption rose by 0.6% (QOQ), recovering from the lower growth of 0.2% in 2017Q2. The path of quarterly growth in household spending through the first three quarters of 2017 was partly driven by changes in the timing of car purchases in response to increases in Vehicle Excise Duty on high-polluting vehicles (which came into force in April 2017). These changes led to consumers bringing forward planned new car purchases, leading to a decline in 2017Q2 but since then there has been a modest recovery to expenditure on transport (including motor cars) into 2017Q3.

General Government final consumption expenditure (GGFCE) grew 0.3% in 2017Q2, the largest contributors to growth were healthcare and education services. Gross fixed capital formation (GFCF) increased by 0.2% (QOQ). Within the sectors of GFCF, business investment growth softened to 0.2% (QOQ). When looking at the asset breakdown of GFCF, both dwellings and intellectual property products showed positive growth in Quarter 3 2017. All other assets were flat or decreased in this period.

The net trade deficit widened by £2.5bn to £11.7bn in volume terms, the largest widening since 2016Q3, contributing negative 0.5 percentage points to GDP growth. Total trade exports (goods and services) decreased by 0.7% (QOQ) whilst total imports increased by 1.1% (QOQ) in 2017Q3.

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