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

10th September 2018

Economic Insight - 10 September 2018

The past four UK recessions compared, and no recession expected on Brexit
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, analyses the last four UK recessions:
Press Release

The past four UK recessions compared, and no recession expected on Brexit

Date: 10th September 2018

The past four UK recessions compared, and no recession expected on Brexit
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, analyses the last four UK recessions:
  • The recessions of the mid-1970s, early-1980s and early-1990s were broadly characterised by high interest rates intended to control inflationary pressures.
  • Specifically, disruptive industrial action and the first oil price shock were the main distinguishing features of the mid-1970s recession. Inflation was nearly 25% in 1975.
  • The early-1980s recession was caused by sharply higher interest rates intended to control entrenched inflationary pressures, which were exacerbated by the effects of the second oil price shock. A rapidly appreciating currency damaged external competitiveness resulting in a significant drop in manufacturing output. The unemployment rate peaked at 11.9% in 1984 (LFS measure).
  • The early-1990s recession was triggered by aggressive monetary tightening in the late 1980s in order to cool the overheating economy and prolonged by membership of the EU’s Exchange Rate Mechanism (ERM). It was noted for the “bust” in the housing market.
  • In contrast, the Great Recession of the late 2000s was triggered by the financial crisis of 2007-08, which began in 2007 with a crisis in the US subprime mortgage market and developed into a full-blown international banking crisis. It was the severest post-war recession and the Bank responded with aggressive cuts in the Bank Rate and the introduction of Quantitative Easing. The “credit crunch” was a feature of this recession.
In addition:
  • The Markit surveys for August were mixed. Services were stronger, but manufacturing and construction were weaker.
  • Both the MPC and the Governing Council of the ECB make their next monetary policy announcements on 13 September. No changes in policy are expected.

Ruth Lea said, “The last four recession were broadly triggered by high interest rates in response to high inflation or, in the case of the Great Recession, a financial crisis. The chances of recession being triggered by high inflation seem remote and there are no signs the Bank wishes to rapidly escalate interest rates. And it seems reasonable to assume the tighter regulation and closer supervision of the banks in recent years should prevent a repeat of the late 2000s financial cataclysm. There is, however, speculation that a “disorderly” Brexit, however defined, may trigger recession.
It is not unreasonable to anticipate some Brexit-related disruption which could impact on GDP growth – even to the extent that GDP may slip back in one or two quarters. But this should only temporary, assuming no damaging unforeseen circumstances, with relatively little impact on unemployment. Therefore, a recession in the sense of a prolonged and damaging hit on GDP and employment, as in the mid-1970s, early-1980s, early-1990s and the Great Recession, seems unlikely.”
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

3rd September 2018

Economic Insight - 3 September 2018

The pace of UK-EU Brexit negotiations is picking up, and the UK prepares for “no deal”
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest developments in the Brexit negotiations:
Press Release

The pace of UK-EU Brexit negotiations is picking up, and the UK prepares for “no deal”

Date: 3rd September 2018

The pace of UK-EU Brexit negotiations is picking up, and the UK prepares for “no deal”
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest developments in the Brexit negotiations:
  • The UK government’s policy remains one of agreeing a “deal” with the EU, but preparations are being stepped up for a “no deal”.
  • DExEU Secretary of State Dominic Raab released 25 documents on “no deal” preparations on 23 August.
  • Looking ahead there are major uncertainties concerning the negotiations. The first relates to the timetable for completing the talks. It now looks almost certain that EU Commission chief negotiator Barnier’s original deadline of early October will slip into early November.
  • The second uncertainty relates to the outcome. There are two broad outcomes. The first is that a deal on the Withdrawal Agreement and the political declaration on the future relationship is “successfully” negotiated and implemented.
  • The second is where proceedings do not go “according to plan.” The main risks are, firstly, where MPs fail to approve any deal that is agreed by the UK and the EU and, secondly, where the UK and the EU fail to agree a deal by 21 January 2019 (or, alternatively, where the PM announces prior to 21 January 2019 that no deal has been agreed). Under these circumstances, the Government would have to present new plans to Parliament.
The latest UK economic indicators suggest:
  • There seems to be some modest softening in the data on lending to individuals, though unsecured credit growth is still buoyant.
  • The public finances seem to be improving faster than anticipated by the OBR in March 2018. The OBR’s forecast for public sector net borrowing of £37.1bn for FY2018 should be comfortably undershot.
Both the MPC and the Governing Council of the ECB are due to make their next monetary policy announcements on 13 September. No changes in policy are expected.

Ruth Lea said, “After a summer lull, the pace of the UK-EU Brexit negotiations has undoubtedly picked up recently. Whilst acknowledging that the Government’s priority is still to agree a deal with the EU, it is right that the Government is also making preparations for a “no deal” outcome.”

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

12345678910 (2017)(2016)

Comment, at a glance

Unemployment rate was 4.0% in three months to July, regular annual earnings growth 2.9%
11 September 2018

Employment grew by just 3,000 (QOQ) in the three months to July, and was 261,000 higher than a year earlier. Within the total, full-time men rose by 108,000 (YOY) and full-time women increased by 155,000, whilst part-time men increased 37,000 (YOY) but part-time women fell by 39,000. The increase in full-time employment was therefore 263,000 (YOY), whilst part-time employment fell 2,000.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.5%, slightly lower than in the previous 3 months (75.6%) but higher than for a year earlier (75.3%). The employment rates for men and women were 80.1% and 71.0% respectively. The recent 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 1.36mn in the three months to July, 55,000 lower than the previous quarter and 95,000 down YOY. The unemployment rate (the proportion of the labour force [those in work plus those unemployed] that were unemployed) was 4.0%; it has not been lower since the 3 months to February 1975. The rate in the 3 months to July 2017 was 4.3%. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 21.2%, higher than for February to April 2018 (21.0%) but unchanged compared with a year earlier.

Job vacancies remain strong. There were 833,000 job vacancies in the three months to August 2018 (sic), the highest since comparable records began in 2001. The number was up 14,000 (QOQ) and 44,000 higher (YOY).

Average weekly earnings for employees (GB) in nominal terms increased by 2.9% for regular pay (excluding bonuses) and 2.6% for total pay (including bonuses) in the three months to July (YOY). This marked a pick-up in earnings growth. The ONS said that “…latest estimates show that average weekly earnings for employees in GB in real terms (adjusted for price inflation) increased by 0.5% excluding bonuses, and by 0.2% including bonuses, compared with a year earlier”. 

All in all, this report suggests the labour market remains robust, despite the slowdown in the rate of employment growth.

 

Read more
Trade (goods & services) deficit narrowed in 3 months to July to £3.4bn
10 September 2018

The total trade (goods & services) deficit narrowed in the 3 months to July by £1.4bn to £3.4bn, within which:
·       The goods deficit improved by £0.6bn to £32.6bn, as exports rose by 5.1% (QOQ) whilst imports rose by 3.1%. The deficit widened by £0.3bn to £23.6bn with EU countries, but narrowed by £1.0bn to £8.9bn with non-EU countries.
·       The services surplus rose by £0.7bn to £29.2bn, as exports rose by 1.2% (QOQ) whilst imports were up just 0.2% 

The total trade deficit in volume terms narrowed by £2.0bn in the 3 months to July to £2.5bn, which acted as a boost to GDP growth (volume terms).

Read more
GDP rose 0.3% (MOM) in July and 0.6% (QOQ) in the 3 months to July
10 September 2018

The ONS now releases GDP on a monthly basis. They estimated that GDP rose by 0.3% (MOM) in July, following increases of 0.1% (MOM) in June and 0.3% (MOM) in May. Services and construction grew well, though production (including manufacturing) was disappointing. Within GDP:
·       The dominant services sector rose 0.3% (MOM) and was the biggest contributor to growth. The ONS said an increase in professional, scientific and technical activities was the largest contributing sector, following a fall in June 2018. The other notable sector increases were wholesale, retail and motor trade, and accommodation and food activities.
·       Production output rose by a paltry 0.1% (MOM), as manufacturing fell 0.2% (MOM).  Electricity and allied industries rose 0.2%, whilst water and allied industries fell 0.7%. Mining and quarrying of rose by 3.3%. There was a return to production in oil & gas extraction following planned maintenance during June 2018.
·       Construction output increased 0.5% (MOM), driven predominantly by a 4.0% increase in new private housing work.

The ONS warned “…the monthly growth rate for GDP is volatile and therefore should be used with caution and alongside other measures such as the 3-month (quarterly) growth rate when looking for an indicator of the long-term trend of the economy”.

Turning to the ONS-favoured 3-month comparison, GDP rose by 0.6% (QOQ) in the 3-months to July. In the 3-months to June (2018Q2) growth had been 0.4% (QOQ). Services and construction contributed well, but production fell. Within GDP:
·       Services were a buoyant 0.6% (QOQ) higher, within which retail trade grew by 2.1% and wholesale trade by 1.6%. The World Cup and the hot weather supported growth.
·       Production (including manufacturing) fell by 0.5% (QOQ). Electricity and gas supply fell 4.5%, reflecting lower demand due to higher than average temperatures during May to July 2018. Manufacturing fell by 0.1% (QOQ), due primarily to a fall in machinery and equipment and metal products.
·       Construction grew 3.3% (QOQ). The sector continued to recover from a period of negative growth at the start of 2018.

 

Read more
Markit Surveys for August mixed
5 September 2018

The much-followed Markit/CIPS surveys were mixed, with both manufacturing and construction slowing. Services were, however, firmer. 
·       The Markit/CIPS manufacturing PMI eased, registering 52.8 in August compared with July’s 53.8 (revised). Although there were some reports of softer growth in new work from the domestic market, the main drag was the trend in new export orders. (Data released on 3 September 2018.)
·       The Markit/CIPS construction PMI was 52.9 in August, easing from July’s 14-month peak of 55.8, but comfortably above the 50 no-change threshold. Commercial building was the best performing area, closely followed by housebuilding. But work on civil engineering projects fell, with some respondents citing a lack of new work on infrastructure projects. (Data released on 4 September 2018.)  
·       The Markit/CIPS services PMI picked up to 54.3 in August, after July’s 53.5, the second-highest since February. Service providers reported a stronger increase in business activity and incoming new orders in August. Employment growth rebounded. But business optimism slipped, reflecting political and Brexit uncertainties. (Data released on 5 September 2018.)

Read more
July’s consumer credit growth remains buoyant
30 August 2018

Concerning lending to individuals the Bank of England announced: 
·       The amount outstanding on unsecured consumer credit rose to £213.5bn in July, an increase of 8.5% (YOY), down on June’s 8.8%, but still buoyant (table B). The amount outstanding now comfortably exceeds the £208bn peak of September 2008, prior to the Great Recession. Within this, the annual growth rate of credit card lending was 8.9%, whilst the growth rate of other loans and advances was 8.2% - the lowest since March 2015. The Bank noted that “…although the annual growth rate of consumer credit remains high, particularly compared to 2009-12, the gradual slowing continues the trend since late 2016”.
·       The amount outstanding on lending secured on dwellings increased by £3.2bn to £1,382.0bn in July, to be up 3.2% (YOY), unchanged from the annual increase in June (table D). The Bank noted “…net lending has been relatively stable over the past year but this (£3.2bn) was the lowest amount of monthly secured lending since April 2017”.
·       The number of mortgage approvals for house purchase slipped to 64,768 in July, compared with June’s 65,374 (table E). They were, however, modestly higher than the previous six months average (64,524) though down on the recent peak of nearly 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).

Net bank lending to non-financial businesses (which includes lending to businesses in the public sector) increased by £2.7bn in July. Net lending was £3.1bn to large businesses, but there was a £0.4bn reduction of net lending to small and medium enterprises (SMEs). The strength in lending to large businesses in July was driven by an increase in lending to the public administration and defence industry. The annual growth in total net lending was -0.2% in July, after +1.0% in June.   

Read more
Public sector net surplus £2.0bn in July 2018
21 August 2018

Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a surplus of £2.0bn in July 2018, compared with a surplus £1.0bn in July 2017. This is the largest July surplus for 18 years (July 2000).

The PSNB so far for FY2018 was £12.8bn, compared with £21.3bn for the first four months of FY2017. This was the lowest year-to-date (April to July) net borrowing for 16 years (March-July 2002). Of this £12.8bn of PSNB, £4.0bn related to the cost of the “day-to-day” activities of the public sector (the current budget deficit), while £8.8bn was capital spending (or net investment), such as on infrastructure. The OBR forecast public borrowing of £37.1bn for FY2018 for the Spring Statement, around one quarter of the borrowing in FY2009, at the peak of the financial crisis. (Borrowing was £153.1bn in FY2009.) On current trends the OBR forecast should be undershot.    

The PSNB for FY2017 (12 months) was £39.4bn, compared with £45. 8bn recorded for FY2016. This was the lowest annual net borrowing since the financial year ending March 2007 (FY2006). At the time of the Spring Statement (March 2018) the OBR forecast a total PSNB for FY2017 of £45.2bn, some £5.8bn higher. This wide disparity should serve as a warning: the OBR’s forecasts, including near-term forecasts, can be highly inaccurate. Of this borrowing, £40.6bn was on capital spending (or net investment), such as on infrastructure, whilst the cost of the “day-to-day” activities of the public sector (the current budget deficit) was in surplus by £1.2bn. This current budget surplus is the first annual surplus since the financial year ending March 2002 (FY2001).

Public Sector Net Debt (PSND) was £1,777.5bn at the end of July 2018 (84.3% of GDP), compared with £1,760.0bn (86.0% of GDP) at end-July 2017. The debt/GDP ratio is now falling.

Read more
Retail sales increased 0.7% in July
16 August 2018

Retail sales rose 0.7% (MOM) in July, after a 0.5% fall in June, to be 3.5% higher (YOY). Non-store retailing was especially strong in the month, with feedback from non-store retailers suggesting that online promotions had further encouraged sales. Non-food stores reported a reduction in footfall in July 2018. Spending online continued to increase to reach a new record proportion of all retailing at 18.2% in July 2018.

Retail sales rose 2.1% (QOQ) in the three months to July, to be 3.4% up (YOY).

Read more
House prices inflation fell to 3.0% in June
15 August 2018

According to official data, UK house prices increased by 3.0% (YOY) in June, down from May’s 3.5% (revised). This was the lowest rate since August 2013, when it was also 3.0%. The ONS commented that “the annual growth rate has slowed since mid-2016 and has remained under 5%, with the exception of October 2017, throughout 2017 and into 2018”. The ONS also said the “…this slowdown in UK house price growth over the past two years is driven mainly by a slowdown in the south and east of England. The lowest annual growth was in London, where prices decreased by 0.7% over the year.”

On a seasonally adjusted basis, average house prices in the UK were flat (MOM) in June 2018, compared with an increase of 0.5% (MOM) in June 2017. 

The UK’s four countries continued to show different inflation rates in June: England (2.7%), Wales (4.3%), Scotland (4.8%) and Northern Ireland (4.4% (2018Q2)).

In England, there was, as always, a significant range across the regions (figure 6): West Midlands (5.8%), East Midlands (4.1%), East (3.3%), Yorkshire & Humberside (3.2%), North West (3.1%), South West (3.1%), South East (2.1%), North East (-0.6%) and London (-0.7%).

Read more
CPIH inflation unchanged at 2.3% in July, CPI inflation rises to 2.5%
15 August 2018

CPIH inflation was 2.3% in July, unchanged from June. (CPIH is the Consumer Prices Index including owner-occupiers’ housing costs and is the ONS’s preferred measure of consumer prices inflation.) The ONS said that upward contributions came from higher prices for computer games, transport fares and motor fuels (where prices fell by less between June and July 2018 than they did a year ago). The upward effects were offset by falls in prices for clothing and footwear, and the removal of initial charges for investment in some unit trusts.

The CPI rate rose to 2.5% in July (2.4% in June). The inflation rates for goods and services in July were 2.6% (2.5% in June) and 2.0% (unchanged from June) respectively. The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was unchanged at 1.8%.

Turning to the producer price index (PPI), the output PPI inflation rate was 3.1% (YOY) in July, compared with June’s 3.3% (revised, table 1). The ONS said that all product groups provided upward contributions to output annual inflation, with the largest contribution from “petroleum products”.

The input PPI inflation rate rose to 10.9% (YOY) in July, the highest since May 2017, compared with June’s 10.3% (table 3). Crude oil continued to provide the largest upward contribution to the inflation rate. A weaker currency also contributed to inflation.  Crude oil prices (in sterling) increased 1.3% (MOM) in July and were 51.9% higher (YOY).

Read more
Labour productivity increased 0.4% in 2018Q2
14 August 2018

The ONS reported that the flash estimate of output per hour (their main measure of labour productivity, “productivity hours”) increased 0.4% (QOQ) in 2018Q2, after a 0.4% fall in 2018Q1, and was 1.5% higher than a year earlier. The quarterly increase reflected a 0.4% rise in GDP, reinforced by a slight 0.1% decrease in total hours worked. (There are rounding errors.) The fall in total hours was driven primarily by a 0.2% fall in average hours per worker.  

Output per worker increased 0.2% (QOQ) in 2018Q2, reflecting a 0.4% increase in GDP, partly offset by a 0.1% (QOQ) rise in employment (jobs). (There are rounding errors.)