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

23rd May 2016

Economic Insight - 23rd May 2016

The Bank reduces growth forecasts, as the Governor warns on Brexit

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest Bank of England forecast and recent developments within the EU.
Press Release

The Bank reduces growth forecasts, as the Governor warns on Brexit

Date: 23rd May 2016

The Bank reduces growth forecasts, as the Governor warns on Brexit
 
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest Bank of England forecast and recent developments within the EU.      
 
The main points are:
  • In line with other forecasters, the Bank downgraded its growth forecasts for the UK, albeit modestly, in the May Inflation Report.
  • The Bank Governor warned that a Brexit vote could lead to a fall in the pound, perhaps sharply, lower growth and higher inflation.
  • Latest UK data were mixed. The labour report was consistent with a slowing economy, the March production data were poor and the March trade deficit increased. But April’s retail sales were buoyant and the housing market looks firm.
  • Eurostat downgraded GDP growth in the Eurozone to 0.5% (QOQ) for 2016Q1. There was robust growth in Spain and Germany. But the Greek economy contracted and growth in Italy and Portugal was weak.
  • The Commission’s “country-specific recommendations” noted that Member States had made progress with reforms but more needed to be done. Portugal and Spain, both in the “excessive deficit procedure”, were given another year to get their budget deficits within the 3% of GDP limit. Italy was deemed to comply with the Stability and Growth Pact, despite a very high debt to GDP ratio.
  • The Commission noted Germany’s “large and persistent” current account surplus, a major “macroeconomic imbalance”, without taking concrete action.   
  • Cyprus exited its financial assistance programme in March.
  • A deal on the next tranche of the €86bn bailout for Greece could be agreed this Tuesday (24 May).   
Ruth Lea said, “Even though there are some signs of further UK economic slowdown, it is impossible to say how much of the deceleration is due to uncertainty ahead of the referendum vote on 23 June. There is concern that a Brexit vote may lead to a significant run on the pound, but the Bank is well placed to support the currency.”

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

9th May 2016

Economic Insight - 9th May 2016

UK economic growth slows, as global growth disappoints

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest UK data in the context of fairly disappointing global developments.
Press Release

UK economic growth slows, as global growth disappoints

Date: 9th May 2016

UK economic growth slows, as global growth disappoints

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest UK data in the context of fairly disappointing global developments.

The main points are:
  • UK GDP growth slowed to 0.4% (QOQ) in 2016Q1, with growth more than driven by the services sector. Labour market expansion has also slowed.
  • The latest Markit/CIPS surveys suggest further slowdown in 2016Q2, but growth should continue given continuing increases in real incomes and the still firm labour market.
  • US growth was very weak in 2016Q1. Whilst there should be some rebound in 2016Q2, it should be noted the April employment report was disappointing. The odds on an interest rate hike in June seem to be lengthening.
  • Eurozone GDP rose by 0.6% (QOQ) in 2016Q1, but this could be erratically high. March’s Eurozone unemployment rate was still in double figures, albeit the lowest since August 2011.
  • Eurozone CPI inflation turned negative again in April (-0.2%), partly reflecting falling energy prices (YOY). But the “core” rate remains well below the ECB’s “just under” 2% target, despite the ECB’s stimulus packages.
  • The European Commission’s Spring (May) forecasts were very cautious, warning that “the outlook for global growth had weakened further”.
  • The Commission projected GDP growth rates of just 1.6% (2016) and 1.8% (2017) for the Eurozone, with huge discrepancies between the individual economies.

Ruth Lea said, “UK GDP growth slowed in 2016Q1 and appears to be slowing further in 2016Q2. Reasons cited include uncertainty surrounding the EU referendum on 23 June. But there are undoubtedly other factors at work including global uncertainties and the introduction of the National Living Wage.”

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

123456 (2015)(2014)

Comment, at a glance

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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Unemployment slips, regular earnings growth 2.1% in 3 months to March
18 May 2016

Employment rose by 44,000 in the three months to March compared with the previous quarter, to be 409,000 higher than a year earlier. Within the total, full-time workers and part-time workers rose by 328,000 and 81,000 respectively (YOY).

Unemployment was 1.69m in the three months to March down 2,000 on the previous quarter and 139,000 down YOY. The unemployment rate was unchanged at 5.1%, the lowest since the three months to October 2005. The rate was 5.6% a year earlier. Unemployment is, therefore, fairly flat. Vacancies remained buoyant, though there was some slippage in the latest figures.  In the three months to April (sic) there were 745,000 vacancies, down 18,000 (QOQ), though 13,000 higher than a year earlier. 

Regular annual earnings growth (excluding bonuses) was 2.1% in the three months to March, slightly firmer than in the previous quarter (2.0%). However, this is still down on mid-2015 and the weakening may reflect compositional changes (with more younger, less experienced workers entering employment). Total annual earnings (including bonuses) was 2.0%, compared with 1.9% in the previous quarter. CPI inflation in April was +0.3%, so earnings growth is easily outstripping prices inflation.

All in all, this jobs report  is much in line with other indicators suggesting the economy is slowing.

 

 

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CPI inflation +0.3% in April
17 May 2016

April’s CPI annual inflation rate was +0.3%, compared with 0.5% in March. The ONS said the main contributors to the fall in the rate were lower air fares (hiked in March reflecting the timing of Easter) and lower prices for clothing, vehicles and social housing rent. 

The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was 1.2% in April, compared with 1.5% in March. Separately the inflation rates for goods and services were minus 1.6% (unchanged) and plus 2.4% (2.8% in March) respectively. Market expectations of the timing of the first interest rate hike have now slipped well into 2019.

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 2.2% in the three months to February, whilst total earnings (including bonuses) were up 1.8%. Moreover, compositional changes could be depressing the average earnings rate.  

Producer output prices fell 0.7% in the year to April 2016, compared with 0.9% (YOY) in March. “Core” factory gate prices (excluding food, beverages, tobacco & petroleum) rose just 0.5% (YOY). “Factory gate” inflation is, therefore, well under control. Input prices, materials and fuel bought by UK manufacturers for processing, fell by 6.5% (YOY) in April. Crude oil prices were down 28.2% (YOY).

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House prices inflation accelerated to 9.0% in March
17 May 2016

House prices inflation accelerated to 9.0% (YOY) in March compared with 7.6% (YOY) in February, according to the ONS. The increased growth seen in some of the regions probably reflected a boost to sales of second homes ahead of the 3% stamp duty surcharge coming into effect on 1 April 2016.

The inflation rate has fluctuated significantly since the Great Recession. House prices recovered in 2010 reaching an inflation rate of +10.6% (May 2010) but then fell back, recording a rate of -2.5% (May 2011). The inflation rate firmed over the next three years, reaching a local peak of 12.1% (September 2014), but then weakened, dipping to 5.2% (July 2015). Since then the rate has tended to firm.

The UK’s four countries showed very different inflation rates in March: England (10.1%), Wales (2.1%), Scotland (-6.1%) and Northern Ireland (6.4%). In England there was, as always, a significant range of regional annual changes: London (13.0%), South East (12.2%), East England (12.1%), South West (8.9%), East Midlands (5.8%), Yorkshire & Humberside (5.5%), North West (4.6%), West Midlands (4.3%) and the North East (0%). The pace of price increases in London is especially noticeable, after a period of relative softness. 

Average house prices rose by 2.5% (seasonally adjusted, MOM) in March. The annual inflation rate for first-time buyers was 9.7%, compared with 8.7% for owner-occupiers (existing owners).

 

 

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Production output fell 0.4% in 2016Q1
11 May 2016

Industrial production (15% of GDP) fell by 0.4% (QOQ) in 2016Q1 but was 0.1% higher than a year earlier. Within the total, manufacturing output (10% of GDP) also fell 0.4% (QOQ) but was 1.3% down (YOY). The largest contribution to the quarterly decrease in manufacturing came from the manufacture of coke & refined petroleum products, which decreased by 12.1%. Of the other three components of industrial production, mining & quarrying (including oil & gas extraction) fell 2.3% (QOQ), electricity & gas output rose by 0.4% (QOQ) and water supply & sewerage output rose by 2.3% (QOQ). In 2016Q1 production and manufacturing were 10.0% and 6.9% respectively below their 2008Q1 levels, when pre-recession GDP peaked. This is a disappointing performance by any standards.

In March production rose by 0.3% (MOM) to be down 0.2% (YOY), whilst manufacturing increased by 0.1% (MOM) to be 1.9% down (YOY).

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£13.3bn trade deficit in 2016Q1, compared with £12.2bn in 2015Q4
10 May 2016

The total trade (goods & services) deficit widened to £13.3bn in 2016Q1, compared with £12.2bn in 2015Q4. Exports rose by 0.4% (QOQ) whilst imports were 1.1% higher. The quarterly deficit was the highest since 2008Q1 and clearly acted as a drag on growth.

There was, however, an improvement in trade between February (deficit £4.3bn) and March (deficit £3.8bn). Within the total, the visible trade deficit slipped to £11.2bn in March, compared with £11.4bn in February. Within the goods total the oil deficit widened to £0.7bn, whilst the deficit on non-oil slipped to £10.5bn The services surplus was estimated to be higher at £7.4bn in March, compared with £7.1bn in February. Monthly data are erratic but the trend in goods and services seems to be fairly flat at present, despite the deterioration in the first quarter figures. 

Turning to the area analysis of the goods figures for March, the UK recorded deficits with EU and non-EU countries of £8.1bn, a record, and £3.1bn respectively. A geographical breakdown of services trade is not yet available.

The largest country deficits in March were recorded with Germany (£2.7bn) and China (£1.8bn). There were also sizeable deficits with the Netherlands (£1.2bn), Belgium-Luxembourg (£0.9bn), Norway (£0.8bn), Italy (£0.6bn), Spain (£0.6bn) and France (£0.5bn). 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 (£0.2bn) 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 48.0% in March. Exports (goods) to the EU were £11.4bn, whilst imports from the EU were £19.4bn, 71% higher. The equivalent figures for Germany were £5.2bn and £2.6bn. Imports from Germany were, therefore, twice as large as exports to Germany.

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Markit Surveys for April show slowing growth
5 May 2016

The much-followed Markit/CIPS surveys for April showed slowing growth for construction and services and a modest decline in manufacturing. The uncertainties surrounding the upcoming referendum on the UK’s membership of the EU were cited as depressing activity.
·         The Markit/CIPS manufacturing PMI fell below the critical no-change mark of 50.0 in April, for the first time since March 2013. It was 49.2 compared with March’s 50.7 (revised). The index was dragged lower by lacklustre trends in production and new orders and declines in both employment and stocks of purchases. New export orders fell for the 4th month as global economic growth continued to slow. (Data released on 3 May 2016.)
·         The Markit/CIPS construction PMI fell to 52.0 in April, pointing to the slowest expansion of business activity since mid-2013, compared with March’s 54.2. Commercial building was the strongest performing category, ahead of residential construction and civil engineering. The overall index was, however, still above the 50.0 no-change threshold. (Data released on 4 May 2016.)
·         The Markit/CIPS Services Business Activity Index also weakened, with April’s Index posting 52.3 compared with March’s 53.7. This was the weakest since February 2013. The survey signalled pointed to the strongest upward pressure on input prices since January 2014, linked to the introduction of the national living wage. (Data released on 5 May 2016.) 

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March’s mortgage approvals ease further
29 April 2016

Mortgage approvals for house purchase eased further in March to 71,357, compared with February’s 73,195, but were much in line with the average for the previous six months, according to the Bank of England’s latest “Money and credit” press release (table I). The recent peak was over 75,000 (January 2014). And it should be noted that approvals are still 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) reached £1,474bn in March, of which nearly 88% 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 £1,291.7bn, to be up 3.4% (YOY) (table H).
·         The amount outstanding on unsecured consumer credit rose to £182.4bn, to be up a buoyant 9.7% (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 to £438.5bn March, to be up a very modest 0.4% (YOY) (table M) (there are rounding errors). Within the total:
·         Loans to large businesses fell to £277bn and the growth rate was -0.2% (YOY).
·         Loans to SMEs (defined as turnover of less than £25 million) was little changed at around £161bn and the growth rate was also +1.3% (YOY).

 Concerning net lending (excluding overdrafts) in March (table N, growth rates are not published):
·         Net lending to large businesses fell £1.9bn, as gross lending was less than repayments.
·         Net lending to SMEs rose £0.1bn.

 

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GDP growth 0.4% in 2016Q1
27 April 2016

GDP (preliminary estimate) increased by a much-as-expected 0.4% in 2016Q1 to be 2.1% higher than a year earlier. This compares with a rise of 0.6% (revised) in 2015Q4 and 0.4% in 2015Q3. The ONS said it had no evidence for or against the slowdown between 2015Q4 and 2016Q1 being linked to the EU referendum on 23 June 2016. The GDP level in 2016Q1 was 7.3% higher than the pre-recession peak (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 2.2%, whilst electricity et al rose by 0.4% and water et al rose 2.0%. Construction output (6% of output) slipped 0.9%. 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 February, to be 2.5% higher than a year earlier. Over the year the largest contributions came from business services & finance and from distribution, hotels & restaurants. 

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Public sector net borrowing £74.0bn in FY2015
21 April 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) totalled £74.0bn (3.9% of GDP) in FY2015 compared with £91.7bn in FY2014 (5.0% of GDP), down £17.7bn. The OBR forecast a PSNB for FY2015 of £72.2bn (3.8% of GDP) in the March 2016 Budget. This forecast was, therefore, not met. The ONS said the figure was subject to revision.

Public sector net borrowing showed a much-as-expected deficit of £4.8bn in March 2016 compared with a deficit of £7.4bn in March 2015 (table 1 of the press release), an improvement of £2.6bn.

Public Sector Net Debt (PSND) was £1,594.1bn in March 2016 (83.5% of GDP), higher than in March 2015 when the PSND was £1,546.6bn (83.3% of GDP). The Chancellor’s supplementary fiscal rule, whereby PSND should fall as a % of GDP in FY2015, was, therefore, missed.

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Parliamentary Committees: Evidence

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