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 June 2019

Economic Insight - 10 June 2019

The World Bank is the latest international body to downgrade growth prospects
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest World Bank forecasts:
Press Release

The World Bank is the latest international body to downgrade growth prospects

Date: 10th June 2019

The World Bank is the latest international body to downgrade growth prospects
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest World Bank forecasts:
    • Following growth downgrades by the IMF, the European Commission and the OECD, the World Bank has also reduced its growth projections.
    • Global growth is now expected to be 2.6% (compared with 2.9% in January), before inching up to 2.7% in 2020 (2.8% in January).
    • Within advanced countries, the downgrade to the Eurozone’s growth in 2019 was notable (to 1.2%, down from 1.6%).
    • Within emerging market and developing economies (EMDEs), there were no changes to China and India for 2019, but downgrades to Russia, Brazil, Mexico and, especially, Turkey.
    • The World Bank attributed the weaker-than-expected growth to “…heightened policy uncertainty, including a recent re-escalation of trade tensions between major economies, …accompanied by a deceleration in global investment and a decline in confidence.”
    • When analysing global economic developments, it is salutary to note just how concentrated economic activity is in the world’s largest economies.
    • Concerning GDP in market exchange rate (MER) terms, the US and China together comprised nearly half of the world’s GDP in 2018. Including the next five largest economies (Japan, German, the UK, France and India) accounted for over 70% of world GDP, whilst the top 16 economies accounted for over 90%.
    • Even GDP in purchasing power parity (PPP) terms, activity is highly concentrated, though less so. China and the US still accounted for a third of global output in 2018, whilst the top 10 accounted for nearly 64%. India was the third largest economy, followed by Japan, Germany, Russia, Indonesia, Brazil, the UK and France.
    Concerning Central Bank Watch:
    • The ECB tweaked its latest GDP forecasts, after March’s major growth downgrade.
    • The ECB also tweaked its “forward guidance”. The key ECB interest rates are now expected to remain at their present levels “at least through the first half of 2020”. In March, rates were expected to be unchanged “at least through the end of 2019”.
    • Fed Chairman Jerome Powell President hinted (4 June) that the central bank was open to cutting interest rates this year if trade conflicts slowed US economic growth, leading to market speculation of a cut in September – or even as early as June (the next rate-setting meeting is 18-19 June).
    • The weaker than expected May Employment Report added to “rate cut” sentiment in the US.
    Concerning UK data:
    • The annual growth of consumer credit continued to slow in April, when it was 5.9%, compared with March’s 6.4%.
    • The mortgage market seems to be holding up well. Net lending for mortgages grew by 3.3% (YOY) in April, unchanged from March, whilst the number of mortgage approvals for house purchase, which give an indication of future mortgage lending, picked up in April.
    • Markit/CIPS surveys suggested manufacturing and construction contracted in May, though services were firmer.
There was an important political development. The Prime Minister stood down as Conservative Party leader on 7 June and the contest for the new leader begins on 10 June. The winner is expected to be announced in the week beginning 22 July.

Ruth Lea said, “Global growth has clearly lost momentum this year, especially in the Eurozone. However, none of the major international forecasting bodies is projecting recession – just subdued growth. It is against this disappointing global background that the UK’s performance must be assessed. On the evidence so far, UK growth has slowed in 2019Q2 but there should be growth, albeit modest.”
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

28th May 2019

Economic Insight - 28 May 2019

House prices may be weakening, but transactions and mortgage approvals are steady
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest data on the housing market:
Press Release

House prices may be weakening, but transactions and mortgage approvals are steady

Date: 28th May 2019

House prices may be weakening, but transactions and mortgage approvals are steady
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest data on the housing market:
  • House price growth has slowed significantly over the last three years. The annual growth was just 1.4% in March.
  • Factors probably bearing down on demand have included higher Stamp Duty Land Tax rates, economic uncertainties and affordability constraints, whilst a modest pick-up in starts and completions has modestly improved supply. The Bank of England does not consider the availability of credit as a problem.
  • The housing market on some key metrics is, however, remarkably stable. Residential property transactions and loans approved for house purchase have been steady over the past three years.
Concerning other UK data:
  • The labour market remains robust, with strong employment growth. The unemployment rate was 3.8% in 2019Q1, the lowest since late 1974.
  • The number of EU nationals in the employment recovered in 2018Q4 and, especially, 2019Q1, when it was at record levels.
  • Vacancies are at near-record levels.
  • Annual real earnings growth continues. It was 1.3% (including bonuses) and 1.5% (excluding bonuses) in 2019Q1.
  • Labour productivity growth continues to disappoint. Output per hour fell 0.6% (QOQ) in 2019Q1 as a strong 1.0% increase in hours worked more than offset the 0.5% increase in GDP.
  • Retail sales rose 1.8% (QOQ) in the three months to April, to be a robust 5.4% higher (YOY).
  • CPIH inflation ticked up to 2.0% in April, whilst CPI inflation ticked up to 2.1%, reflecting rising energy prices.
  • Public sector net borrowing was £5.83bn in April 2019, compared with borrowing of £5.86bn in April 2018. The April 2019 figure was the lowest April borrowing since 2007.
There were some important political developments:
  • The Prime Minister announced (on 24 May) that she would stand down as Conservative Party leader on 7 June and the contest for the new leader would begin on 10 June. She would stay on as “caretaker” Prime Minister until a new leader had been elected (probably by the end of July ahead of the summer recess).
  • The UK European elections (held on 23 May) resulted in major wins for the new Brexit party and the LibDems (which did very poorly in 2014), with the Labour and Conservative parties losing seats compared with 2014. UKIP lost all of its seats.
Ruth Lea said, “It is important to keep the recent softening in the housing market in perspective. The market has not “ground to a halt”. Granted demand is reported to have weakened, but prices are adjusting to changed circumstances and activity on at least two main indicators, residential property transactions and mortgage approvals, has remained relatively stable over the past three years.”
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

1234567 (2018)(2017)

Comment, at a glance

Unemployment rate was 3.8% in the three months to April, total annual earnings growth 3.1%
11 June 2019
Employment rose by 32,000 (QOQ) in the three months to April to 32.75mn, and was 357,000 higher than a year earlier (table 1 of the ONS’s labour market overview bulletin). This annual increase of 357,000 was due entirely to more people working full-time (up 402,000 (YOY) to reach 24.15mn). Part-time working showed a fall of 45,000 (YOY) to reach 8.60mn.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 76.1%, the joint-highest estimate since comparable estimates began in 1971. The employment rates for men and women were 80.3% and 72.0% 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 1.30mn in the three months to April, 34,000 lower than the previous quarter and 112,000 down YOY (table 1). The unemployment rate (the proportion of the labour force that were unemployed) was 3.8%, compared with 4.2% a year earlier. It has not been lower since 1974Q4. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 20.8%, close to a record low.

Job vacancies remain strong, though they have eased since the beginning of 2019. There were 837,000 job vacancies in the three months to May 2019 (sic), still at near-record levels since comparable records began in 2001. The number was down 12,000 (QOQ) but 11,000 higher (YOY).

Average weekly earnings for employees (GB) in nominal terms increased by 3.1% for total pay (including bonuses) and by 3.4% for regular pay (excluding bonuses) in the three months to April (table 2). Underlying earnings growth has picked up since mid-2017. The ONS said the latest estimates show that average weekly earnings for employees in GB in real terms (adjusted for price inflation) increased by 1.2% including bonuses and by 1.5% excluding bonuses, compared with a year earlier.

All in all, this report suggests the labour market remains robust, though employment growth appears to be slowing and the number of vacancies is easing.

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Trade (goods & services) deficit widened in three months to April
10 June 2019

The total trade (goods & services) deficit widened by £2.7bn to £15.6bn in the three months to April, reflecting the worsening goods deficit, whilst the services surplus increased slightly (table 1). Within the total:

·       The goods deficit rose by £2.8bn to £43.4bn in the three months to April (£40.7bn in the previous three months). Rising imports of unspecified goods (including non-monetary gold (NMG)), offset in part by falling imports of fuels, was the main driver in the widening of the trade in goods deficit in the three months to April 2019.

·       Excluding unspecified goods (including NMG), the total trade deficit narrowed £4.2bn to £6.6bn in the three months to April 2019. This gives a more accurate assessment of the underlying state of the trade position.

·       Within goods, the deficit with EU countries widened by £0.4bn (QOQ) to £25.0bn and the deficit with non-EU countries widened by £2.4bn (QOQ) to £18.4bn (table 2).

·       The services surplus rose by £0.1bn to £27.9bn in the three months to April.  

·       Exports of goods and services rose by 0.8% (QOQ) in the three months to April, whilst imports rose 2.2%. Within the total exports of goods rose 1.6% (QOQ), whilst imports rose by 3.2%, and exports of services fell by 0.1% (QOQ), whilst imports fell by 0.5%.

Removing the effect of inflation, the total trade deficit widened £7.0bn (QOQ) to £18.4bn in the three months to April, acting as a drag on constant price GDP growth, though see note on non-monetary gold (below).

A footnote on non-monetary gold (NMG):
Non-monetary gold is the technical term for gold bullion not owned by central banks. Because a significant amount of the world’s trade in non-monetary gold takes place on the London markets, this trade can have a large impact on the size of and change in the UK’s headline trade figures. NMG is one sub-component of the commodity group “unspecified goods”. The effects of NMG are GDP neutral as the NMG impact on Gross Capital Formation (in which NMG is included in valuables) and the NMG impact on net trade (where NMG is part of goods trade) offset each other. They are equal numerically, with opposite signs.

 

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GDP slipped 0.4% in April, rose 0.3% in 3 months to April
10 June 2019

GDP slipped 0.4% in April, rose 0.3% in 3 months to April: 10 June 2019

GDP slipped by 0.4% (MOM) in April, mainly reflecting the fall in production output, but was 1.3% (YOY) higher (table GVA3). Within GDP:

·       Services output was flat (MOM) in April. There was a large positive contribution from information and communication but this was in part offset by a contraction in professional, scientific and technical activities.

·       Production output fell by 2.7% (MOM) reflecting a 3.9% (MOM) decrease in manufacturing. The ONS said “…strong growth in manufacturing in February and March 2019 was consistent with an increase in activity ahead of the UK’s originally-intended departure date from the EU. The weaker picture in April 2019 was in line with a fall back from early completion of orders in 2019Q1.” The ONS also said “…the most notable movement in April was the decline in manufacture of transport equipment. Output in this industry has been weak since October 2018 and contracted by 13.4% in April 2019. The decline in transport equipment was due largely to a fall of 24.0% in car manufacturing.”

·       Construction output slipped 0.4% (MOM). The largest negative contributor to monthly growth was private housing repair and maintenance.

The monthly growth rates for gross domestic product (GDP) are volatile and therefore should be used with caution and alongside other measures such as the three-month growth rate when looking for indicators of the longer-term trend of the economy. However, they are useful in highlighting one-off changes that can be masked by three-month growth rates.

GDP rose by 0.3% (QOQ) in the three months to April, to be 1.8% higher (YOY) (table GVA1). Within the total:

·       Services output grew just 0.2% (QOQ) in the three months to April. Growth was driven by wholesale and retail trade, within which retail trade was particularly strong. Another large driver to growth was information and communication. The ONS said the 0.2% increase was “the lowest rolling three-month growth since April 2018”.

·       Production output rose by 0.7% (QOQ) reflecting a 1.2% (MOM) increase in manufacturing. Within manufacturing, the two largest positive contributors to growth were manufacture of food products and pharmaceutical products.

·       Construction output grew 0.4% (QOQ), driven by strong growth in infrastructure.

Overall, the ONS commented “GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns.”

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Markit Surveys for May were mixed, remaining subdued
5 June 2019
The much-followed Markit/CIPS surveys suggested manufacturing and construction contracted in May, though services were firmer. They were all subdued.

·       The Markit/CIPS manufacturing PMI fell sharply to 49.4 in May, below the 50.0 no-change threshold, compared with April’s 53.1. Manufacturers reported increased difficulties in convincing clients to commit to new contracts during May. This reflected the already high level of inventories following recent stockpiling activity in advance of the original Brexit date (29 March 2019). (Data released on 3 June 2019.)

·       The Markit/CIPS construction PMI fell to 48.6 in May, also below the 50.0 no-change threshold, compared with April’s 50.5. Lower volumes of commercial work and civil engineering activity more than offset a modest increase in house building. (Data released on 4 June 2019.) 

·       The Markit/CIPS services PMI picked up slightly to 51.0, above the 50.0 no-change threshold, compared with April’s 50.4. The rate of expansion edged up to a three-month high. The recovery in service sector output was supported by a modest rebound in new business and the fastest upturn in staffing levels since November 2018. Business optimism also improved in May, with service providers signalled that growth expectations picked up to the strongest since last September. (Data released on 5 June 2019.)

·       Markit said the surveys collectively showed that “…the economy remained close to stagnation through 2019Q2, registering one of the weakest performances since 2012.”

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Consumer credit growth continues to weaken in April
31 May 2019

Concerning lending to individuals the Bank of England announced: 
·       Consumer credit increased by £0.9bn in April, in line with the monthly average increase since July 2018. The annual growth continued slowing and was 5.9% in April, compared with March’s 6.4%. (Money & Credit statistical release, table B). Growth is now five percentage points below its peak in November 2016 and the lowest since June 2014.
·       Net lending for mortgages increased by £4.3bn in April, slightly higher than the average of £3.8bn seen over the previous six months. The annual increase was unchanged at 3.3% (table D).
·       The number of mortgage approvals for house purchase, which give an indication of future mortgage lending, picked up to 66,261 in April, compared with March’s 62,559 (table E). And they were up on the previous six months average (65,017) though well 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).

The amount private non-financial corporations borrowed from UK banks and financial markets increased by a relatively strong £5.7bn in April (table F). Within this:
·       Bank lending increased by £4.4bn, primarily reflecting borrowing by the manufacturing industry.
·       Corporations’ net bond issuance (a form of longer-term borrowing from financial markets) was £2.9bn, reflecting strong gross issuance for a second month.
·       Net equity issuance was also positive in April, and its strongest value since February 2018.
·       In contrast, net commercial paper issuance (a form of short-term borrowing from financial markets) fell by £1.1bn in April, as repayments picked up following strong gross issuance over the previous five months.

Net bank lending to non-financial businesses (which includes lending to businesses in the public sector) rose by £1.6bn in April (table G). Loans to large businesses increased by £1.4bn, whilst loans to SMEs were just £0.2bn higher. The growth rate of lending to large businesses was fairly robust at 4.9% (YOY), while the growth rate for SMEs was 0.2% (YOY).

 

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Retail sales rose 1.8% in 3 months to April
24 May 2019
Retail sales rose 1.8% (QOQ) in the three months to April, to be a robust 5.4% higher (YOY) (table 1). There was strong growth in non-store retailing, which reached a record high of 9.4% (QOQ). The ONS commented “…online retailers selling clothing items were the driver to this growth, with the warm weather helping to boost sales”.

Retail sales were flat (MOM) in the month of April, after strong growth in February and March, to be 5.2% higher (YOY). There was growth in clothing, non-store retailing and fuel, which was offset by falls in all other main sectors.

In April 2019, online retailing accounted for 18.7% of total retailing, compared with April 2018’s 17.7%.

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Public sector net borrowing £5.8bn in April 2019
22 May 2019

Public sector net borrowing (PSNB-ex, excluding public sector banks) was £5.83bn in April 2019, compared with borrowing of £5.86bn in April 2018 (figure 1). The April 2019 figure was the lowest April borrowing since 2007. Central government receipts in April 2019 increased by £1.4bn (or 2.4%) YOY, to £61.2bn, while total central government expenditure increased by £1.8bn (or 2.7%) to £66.5bn. Much of this annual growth in central government receipts in April 2019 came from Income Tax-related revenue, with National Insurance contributions and Income Tax increasing by £0.5bn and £0.2bn respectively.

The PSNB for FY2018 (April 2018 to March 2019) was £23.5bn, compared with £41.8bn for FY2017 (figure 3). This was the lowest annual net borrowing for 17 years (since FY2001). Of this £23.5bn borrowed, £43.3bn was capital spending (or net investment), such as infrastructure, while the cost of the “day-to-day” activities of the public sector (the current budget deficit) was in surplus by £19.8bn. The OBR forecast public borrowing of £22.8bn for FY2018 for the Spring Statement (March 2019). It was, therefore, modestly overshot.

Public Sector Net Debt (PSND-ex, excluding public sector banks) was £1,797.7bn at the end of April 2019 (82.7% of GDP), compared with £1,777.2bn (84.3% of GDP) at end-April 2018. The debt/GDP ratio is now falling.

The ONS announced, in December 2018, that they were changing the way they treat student tuition fee and maintenance loans in the government’s accounts. They aim to implement these changes in September 2019.

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House prices inflation picked up to 1.4% in March
22 May 2019

According to official data, UK house prices increased by 1.4% (YOY) in March, up from February’s 1.0%, revised (figure 1). The ONS commented “…however, over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England. The lowest annual growth was in London, where prices fell by 1.9% (YOY) in March”.

Prices fell 0.2%, non-seasonally adjusted (MOM), but increased 0.1%, seasonally adjusted (MOM), in March. 

The UK’s four countries continued to show different inflation rates in March: England (+1.1% YOY), Wales (+3.0% YOY), Scotland (+3.3% YOY) and Northern Ireland (+3.5% (2019Q1, YOY)).

In England, there was, as always, a significant range across the regions (figure 4). The complete list of annual price changes is: Yorkshire & Humberside (3.6%), West Midlands (3.4%), East Midlands (2.9%), North West (2.5%), South West (1.3%), East (flat), South East (-0.4%), North East (-0.8%), London (-1.9%).

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CPIH inflation rate 2.0%, CPI inflation rate 2.1% in April
22 May 2019
CPIH inflation rose to 2.0% in April, up from 1.8% in March. (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 “…rising energy prices and air fares, which were influenced by the timing of Easter, produced the largest upward contributions to change in the rate between March and April 2019. The largest, offsetting, downward contribution came from across a range of recreational and cultural items, which included computer games and package holidays.”

The inflation rates for goods and services in April were 1.4% (1.3% in March) and 2.5% (2.2% in March) respectively. The core rate inflation (excluding energy, food, alcoholic beverages & tobacco) was slipped to 1.7% (1.8% in March). The Consumer Prices Index (CPI) 12-month rate was 2.1%, up from March’s 1.9%.

Turning to the producer price index (PPI), the inflation rate for the output PPI (goods leaving the factory gate) was 2.1% (YOY) in April (down from March’s 2.2%, revised, table 1). The ONS reported that “…all product groups provided upward contributions to output annual inflation.”

The inflation rate for the input PPI (materials and fuels used in the manufacturing process) increased to 3.8% (YOY) in April, up from March’s 3.2%, revised (table 3). The ONS commented “…crude oil provided the largest upward contribution to the annual rate of input inflation, increasing to 6.9% on the year.”

The annual rate of inflation for imported materials and fuels was 3.3% (YOY) in April (up from March’s 2.7%, table 4). Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight. The sterling effective exchange rate index (ERI) depreciated 0.5% (MOM) in April, to be 0.9% lower YOY (table 4). Crude oil prices rose 5.7% (MOM) in April, to be 6.9% higher YOY (table 5). 

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Labour productivity (output per hour) slipped 0.6% in 2019Q1
14 May 2019

The ONS reported that the flash estimate of output per hour (their main measure of labour productivity, “productivity hours”) slipped 0.6% (QOQ) in 2019Q1, and was 0.2% lower (YOY). The quarterly decrease reflected a 0.5% (QOQ) rise in GDP and a 1.0% (QOQ) rise in total hours worked. (There are rounding errors.)

In contrast, output per worker increased 0.2% (QOQ) in 2019Q1, reflecting a 0.5% increase in GDP, which more than offset a 0.4% (QOQ) rise in employment. (There are rounding errors.) The YOY change in 2019Q1 was +0.7%.

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