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

26th September 2016

Economic Insight - 26th September 2016

The Brexit vote has had no major economic impact so far, according to the ONS

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest UK economic developments.
Press Release

The Brexit vote has had no major economic impact so far, according to the ONS

Date: 26th September 2016

The Brexit vote has had no major economic impact so far, according to the ONS


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest UK economic developments.

The main points are:
• The ONS’s Chief Economist reported that “the referendum result appears, so far, not to have had a major effect on the UK economy.”
• August’s retail sales were surprisingly strong after an exceptionally buoyant July figure.
• The SMMT reported that August car output was the strongest August for 14 years. Exports were especially buoyant.
• The CBI said their latest Industrial Trends Survey suggested that manufacturing to grow well.
• Employment continues to grow and unemployment fall (three months to July). Average earnings growth is easily outstripping prices inflation.
• House prices maintain the strong growth seen since the end of 2103, even though the annual increase eased in July (ONS data).
• The latest Bank of England Agents’ report suggested continuing growth, albeit slowing.
• August’s public borrowing data were disappointing and the OBR’s March forecast for the PSNB (public sector net borrowing) for FY2016 is almost certain to be overshot.
• CPI inflation remains well under control and was unchanged at 0.6% in August.
• Producer output inflation is picking up but is still well under control and, even though producer input prices are picking up more substantially reflecting the weaker pound, it is unlikely there will be a damaging burst in output prices inflation.
• The OECD marginally upgraded the UK’s GDP growth forecast for 2016 (from 1.7% to 1.8%), though more substantially downgraded the forecast for 2017 (from 2.0% to 1.0%).
• The MPC left monetary policy unchanged at its September meeting, expressing the view that the economy had performed better than expected in August. Even though the MPC touched on the possibility of another cut in interest rates, this seems highly unlikely given the growth in the economy.

Two other developments are also discussed:
• The OECD’s global growth forecast was lacklustre for 2016 and 2017. The OECD partly attributed the weakness to poorer trade prospects. They also warned about the distortions in the financial markets arising from ultra-low (and negative) interest rates. They recommended more activist fiscal, structural and trade policies to boost growth.
• The Fed left interest rates unchanged at their September meeting, though there were hints of a rise in December after the Presidential elections.

Ruth Lea said, “recent indicators suggest that the British economy has been little affected by the Brexit vote, so far. Growth continues against a disappointingly lacklustre global background. But these are early days and caution is advisable.”

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

12th September 2016

Economic Insight - 12th September 2016

The economic growth rate in 2016Q3: some slowdown after the second quarter pick-up

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest UK economic data.
Press Release

The economic growth rate in 2016Q3: some slowdown after the second quarter pick-up

Date: 12th September 2016

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the latest UK economic data.

The main points are:
• Industrial production rose just 0.1% (MOM) in July, with manufacturing dropping 0.9%. But monthly data are erratic and on the three months’ comparison, growth continues for both statistics.
• National Institute of Economic and Social Research estimated that GDP growth in the three months to August was 0.3% (QOQ), after 0.4% in the three months to July and 0.6% in 2016Q2. GDP growth in 2016Q1 was 0.4% (QOQ).
• The Markit/CIPS surveys for August rebounded strongly for all three sectors (manufacturing, construction and services), after falling in July after the Brexit vote.
• Confidence in the housing market recovered in August according to the RICS and house prices are still rising firmly. But mortgage approvals for house purchase fell in 2016Q2 and July, after picking up in 2016Q1 ahead of the imposition of the 3% stamp duty surcharge on second homes and buy-to-lets in April.
• The visible trade deficit improved in July as exports picked up and imports fell. The weaker pound since November and since the referendum appears to be helping export orders.
• The ONS’s latest bilateral trade data (for 2015) confirm the USA as the UK’s largest export market for both goods and services, by far.
• The relative importance of EU markets continues to decline. Exports of goods and even exports of services (taken separately) to the non-EU both exceeded exports of goods to the EU in 2015.
• “Access” to the Single Market will continue post-Brexit, even if the UK ceases to be a member of the Single Market. The Government’s “Balance of Competences” report on the Single Market concluded, however, it was significantly incomplete for services.

Ruth Lea said, “recent indicators suggest, on balance, that growth continues, albeit slower than in 2016Q2 when there had been a pick-up in activity, and that business confidence recovered in August after a period of increased uncertainty in July after the referendum vote.”

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

12345678910 (2015)(2014)

Comment, at a glance

Public sector net borrowing deficit £10.5bn in August
21 September 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a deficit of £10.5bn in August 2016, £0.9bn (rounding errors) down on the deficit recorded in August 2015 (£11.5bn). Of the £10.5bn, £7.6bn related to the cost of the “day-to-day” activities of the public sector (the current budget deficit), while £2.9bn related to the spending on infrastructure (net investment).

Due to the volatility of the monthly data, the cumulative financial year-to-date borrowing figures provide a better indication of the progress of the public finances than the individual months. The cumulative total for PSNB for the first five months of FY2016 was £33.8bn, £4.9bn down (12.7%) on the £38.7bn recorded for the first five months of FY2015. The OBR forecast a total for FY2016 of £55.5bn (March Budget), compared with an outturn of £76.5bn (revised) for FY2015, an implied improvement of £21.0bn (27.4%). On current trends the March Budget forecast for FY2016 is almost certain to be missed, possibly by around £8-9bn. It is expected that the OBR will revise its forecasts in the Autumn Statement.

Public Sector Net Debt (PSND) was £1,621.5bn at the end of August 2016 (83.6% of GDP), compared with £1,569.5bn (also 83.6% of GDP) at end-August 2015. One of the previous Chancellor’s objectives was to reduce debt as a % of GDP over the forecast period. This objective is likely to be missed.

Read more
Retail sales stronger than expected in August
15 September 2016

Retail sales (volume, GB) increased by a stronger-than-expected 6.2% (YOY) in August. The ONS reported that all store types except textile, clothing and footwear, and household goods showed growth with the main contribution coming from food stores. The slippage on July’s above trend figure was a less-than-expected 0.2% (MOM). In the three-months to August, retail sales were 1.6% higher (QOQ) to be 5.5% up (YOY).

Reflecting falling prices, the value of retail sales rose 4.1% (YOY) in August, with the slippage being 0.5% (MOM).

Read more
Unemployment falls further, total earnings growth 2.3% in 3 months to July
14 September 2016

Employment rose by 174,000 in the three months to July compared with the previous 3 months, to be 559,000 higher than a year earlier. Within the total, full-time workers and part-time workers rose by 434,000 and 126,000 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 1.63m in the three months to July, 39,000 down on the previous quarter and 190,000 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. Turning to the claimant count, there were 771,000 people claiming unemployment related benefits in August (sic), down 2,400 (MOM) and 21,300 lower than a year earlier.

Job vacancies remain very strong. There were 752,000 job vacancies in the three months to August 2016 (sic). This was little changed (up 3,000) compared with March to May 2016 and up slightly (9,000) compared with a year earlier.

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.3% (including bonuses) and by 2.1% (regular pay, excluding bonuses) in the three months to July compared with a year earlier. The introduction of the mandatory National Living Wage (introduced 1 April) boosted earnings in April. CPI inflation in August was +0.6%, so earnings growth is easily outstripping prices inflation.

All in all, this report suggests the labour market remains firm and the Brexit referendum result had little or no impact on the jobs figures.  

Read more
House prices inflation eased to 8.3% in July
13 September 2016

House prices inflation eased to 8.3% (YOY) in July, compared with 9.7% in June (revised), nevertheless 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 July: England (9.1%), Wales (4.0%), Scotland (3.4%) and Northern Ireland (7.8% (2016Q2)). In England there was, as always, a significant range across the regions: East of England (13.2%), London (12.3%), South East (11.9%), South West (7.8%), East Midlands (7.8%), West Midlands (6.4%), North West (6.1%), the North East (5.8%) and Yorkshire & Humberside (4.7%).

Average house prices rose by 0.4% (seasonally adjusted, MOM) in July. The annual inflation rate for first-time buyers was 8.1%, compared with 8.6% for former owner-occupiers (existing owners) (GB data only).

Read more
CPI inflation unchanged at 0.6% in August
13 September 2016

August’s CPI annual inflation rate was 0.6%, unchanged from July. The ONS said that, though higher than in previous months, July’s CPI inflation was still relatively low historically. The main upward contributors to change in the rate were rising food prices and air fares, and a smaller fall in the price of motor fuels than a year ago. These upward pressures were offset by falls in hotel accommodation prices, in addition to smaller rises in the prices of alcohol, and clothing and footwear than a year ago. The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was 1.3% in August, unchanged. Separately the inflation rates for goods and services were minus 1.4% (unchanged) and plus 2.8% (2.7% in July) respectively.

Producer prices inflation has been on an upward trend since August 2015. But “factory gate” inflation remains fairly well under control. Producer output prices rose 0.8% in the year to August 2016, compared with 0.3% (YOY) in July. “Core” factory gate prices (excluding food, beverages, tobacco & petroleum) rose 1.3% (YOY), higher than in July (1.0%). Input prices, materials and fuel bought by UK manufacturers for processing, are, moreover, picking up. They increased by 7.6% (YOY) (4.3% in July). Crude oil rose 11.4% (YOY) in August compared with a fall of 6.3% (YOY) in July 2016. This is the first time the annual rate for crude oil has been positive since September 2013. The prices of imported inputs are trending higher, probably reflecting the weaker currency.

Read more
£4.5bn trade deficit in July, compared with £5.6bn in June
9 September 2016

The total trade (goods & services) deficit narrowed to £4.5bn in July, compared with £5.6bn in June (revised up). Monthly data are erratic but the trend seems to be fairly stable at present.

Within total trade, the visible trade deficit fell to £11.8bn in July, compared with £12.9bn in June (revised up). Exports of goods increased by 3.4% (MOM), whilst imports fell 0.9% higher. Within the goods total the oil deficit narrowed to £0.6bn, and the deficit on non-oil narrowed to £11.2bn The services surplus was estimated to be £7.3bn in July (unchanged). Services exports were 43% of total exports in July. On a trend basis, services exports are increasing as a proportion of total trade.

Turning to the area analysis of the goods figures for July, the UK recorded deficits with EU and non-EU countries of £7.6bn and £4.2bn respectively. A geographical breakdown of services trade is not yet available.

The largest country deficits in July were recorded with Germany (£2.5bn) and China (£2.2bn). There were also sizeable deficits with the Netherlands (£1.3bn), Belgium-Luxembourg (£1.0bn), Spain (£0.7bn), Italy (£0.6bn) 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 Irish Republic (£0.4bn). Trade with the US was broadly in balance.

 The recorded share of UK goods exports going to the EU, which is also distorted by the Rotterdam-Antwerp Effect, was 50.5% in July.

Read more
Production output marginally higher in July
7 September 2016

Industrial production (15% of GDP) rose 0.1% (MOM) in July to be 2.1% higher than a year earlier. Within the total, there was growth in three of the four sectors: mining & quarrying (including oil & gas extraction) increased by 4.7% (MOM), electricity & gas output rose by 0.4% whilst water & related output rose by 0.5%. But manufacturing (10% of GDP) dropped 0.9% (MOM). The ONS warned against over-interpreting one month’s figures.

Taking the three months’ comparison, production was 1.0% (QOQ) higher in the three months to July, whilst manufacturing grew 0.5%. In the three months to July, industrial production and manufacturing were still 7.6% and 5.2% respectively below their levels reached in the pre-recession GDP peak in 2008Q1.

Read more
Markit Surveys for August rebound
5 September 2016

The much-followed Markit/CIPS surveys for August rebounded strongly after falling in July after the Brexit vote.
·         The Markit/CIPS manufacturing PMI jumped to 53.3 in August, compared with 48.3 in July. Companies reported solid inflows of new work from both domestic and export sources, the latter aided by the more competitive pound. Output was also buoyant. (Data released on 1 September 2016.)
·         The Markit/CIPS construction PMI also jumped. It rose to 49.2 after July’s 45.9. Housing activity and commercial building were still declining, but at a slower rate, whilst civil engineering activity stabilised. The overall index was, however, still below the 50.0 no-change (stabilisation) threshold. (Data released on 2 September 2016.)
·         The Markit/CIPS services PMI also rebounded strongly. The Business Activity Index was 52.9 in August, compared with 47.4 in July. Companies linked greater demand to new clients, higher export business reflecting the weaker pound, higher domestic tourism and returning confidence after the Brexit vote. (Data released on 5 September 2016.)

 

Read more
July’s mortgage approvals for house purchase slip further
30 August 2016

Mortgage approvals for house purchase slipped in July to 60,912, compared with June’s 64,152 and the lowest since January 2015, and were lower than the average for the previous six months (68,775), 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 March, reflecting the imposition of the 3% stamp duty surcharge on second homes, which came into effect on 1 April 2016.

The stock of total lending to individuals (secured and unsecured) rose to £1,496bn in July, of which over 87% was secured on dwellings. The growth rate was still fairly modest, at 4.1% (YOY), unchanged from June (table G). Within the total:
·         The amount outstanding on lending secured on dwellings rose to £1,310bn, to be up 3.3% (YOY), unchanged (table H).
·         The amount outstanding on unsecured consumer credit rose to £186.6bn, easing to +10.1% (YOY), compared with 10.3% (YOY) in June (table J). 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 £445bn in July, compared with £443bn in June. The growth rate increased to 3.0% (YOY) (table M). Within the total:
·         Loans to large businesses increased to £283bn, whilst the growth rate rose to 3.6% (YOY).
·         Loans to SMEs (defined as turnover of less than £25 million) was up slightly to £162bn and the growth rate increased to 2.1% (YOY).

Concerning net lending (excluding overdrafts) in July (table N, growth rates are not published):
·         Net lending to large businesses increased modestly (£1.6bn), as gross lending marginally exceeded repayments.
·         Net lending to SMEs was up marginally (£0.2bn).

 

 

Read more
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”. 

Read more

Parliamentary Committees: Evidence

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