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

19th June 2017

Economic Insight - 19th June 2017

A minority Conservative Government and Brexit talks begin

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the General Election results and the opening of the Brexit talks (19 June):
Press Release

A minority Conservative Government and Brexit talks begin

Date: 19th June 2017

A minority Conservative Government and Brexit talks begin

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the General Election results and the opening of the Brexit talks: (19 June):
  • The Conservatives lost their overall majority in the 8 June General Election. The Prime Minister has formed a minority Government, which will probably be backed by the DUP in a “confidence and supply” arrangement.
  • The Brexit negotiations are due to start on 19 June, as planned prior to the Election.
  • The Queen’s Speech, in which Brexit will be a major issue, will occur on 21 June, two days after originally planned. The Government has announced there will be no Queen’s Speech in 2018.
  • There is speculation Government “austerity” will be relaxed. However, little change is expected prior to the Autumn Budget and, even then, little may change.

  • In addition:
  • Of the economic data released, industrial output and construction output were weaker-than-expected in April, but the trade balance improved.
  • CPIH inflation rose to 2.7% (YOY) in May, whilst (total) average earnings were just 2.1% higher (YOY) in the three months to April.
  • The labour market remains very robust, and the unemployment rate was just 4.6% in the three months to April.
  • With employment growth expected to slow in forthcoming months, productivity growth must improve if GDP growth is to be maintained.
  • Surprisingly, three members of the MPC voted for a rate rise in June, but we still expect rates to remain at their current levels for the next 12-18 months.
  • The Fed increased rates in June, as expected, with one more hike projected for this year.
  • The World Bank expects strengthening global growth this year and next, whilst the OECD upgraded its growth forecast for 2017 to 3.5%. However, both international organisations were still relatively cautious about the current global recovery, if not downbeat.
Ruth Lea said, “Brexit negotiations will start on 19 June. It is widely expected that the UK Government will retain its basic negotiating stance, despite the political uncertainties following the General Election results. This stance is broadly out of the Customs Union and out of the Single Market, but wishing to negotiate a partnership with the EU, based on economic and security cooperation.”
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

Bell Pottinger:
Dan de Belder
020 3772 2561
ddebelder@bellpottinger.com





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5th June 2017

Economic Insight - 5th June 2017

The 2017 General Election: clear blue water between the two main parties

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the forthcoming General Election (8 June):
Press Release

The 2017 General Election: clear blue water between the two main parties

Date: 5th June 2017

The 2017 General Election: clear blue water between the two main parties

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the forthcoming General Election (8 June):
  • Recent polls have tended to show the Conservative lead over Labour narrowing, but there are wide discrepancies between the different polling companies and respected analyst John Curtice suggests the Tories should still gain an overall majority.
  • There is clear blue water between the Conservatives and Labour, not least on tax and spending plans, as outlined in their manifestos.
  • The Conservatives have few tax and spending commitments, whilst aiming to eliminate the public sector deficit. The Labour Party has proposed large increases in taxes and spending and, according to the IFS, add to borrowing.
  • The Labour Party would increase taxes on the “rich”, but recent Revenue and Customs data suggest that the top 1% of taxpayers will contribute nearly 28% of income tax payments this year, whilst the top 5% will contribute 48%.

  • In addition:
  • Of the economic data released, GDP growth for 2017Q1 was revised down to 0.2% (QOQ), but an encouraging feature was the pick-up in investment. April’s Public Sector Net Borrowing was disappointing, but monthly data are erratic.
  • On Brexit, the European Commission’s “Taskforce for the preparation and conduct of the negotiations with the United Kingdom under Article 50 TEU” is now well prepared for the upcoming Brexit negotiations. The current Government has said negotiations will start on 19 June.
Ruth Lea said, “No-one can claim the economic policies of the two main parties are the same. Whilst the Conservatives are prepared to continue with austerity in order to balance the books, the Labour Party would implement large increases in both taxes and spending, inevitably squeezing out the private sector.”
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

Bell Pottinger:
Dan de Belder
020 3772 2561
ddebelder@bellpottinger.com





Download full article

1234567 (2016)(2015)

Comment, at a glance

Public sector net borrowing £6.7bn in May
21 June 2017

Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a deficit of £6.7bn in May, the lowest May borrowing since May 2007, compared with £7.1bn in May 2016. The cumulative borrowing total for FY2017 to date was £16.1bn, which was the lowest since April-May 2008 and marginally lower than the £16.2bn recorded for the first 2 months of FY21016.

Monthly data are erratic and it is too soon to assess trends for this financial year. But it should be noted that the OBR in its March Budget forecast expected the deficit to widen in FY2017 to £58.3bn compared with FY2016 (£46.6bn, revised, the lowest since FY2007). FY2016 benefited from special factors, such as delays in payments to the EU. The OBR had forecast a PSNB of £51.7bn for FY2016 in March.

Public Sector Net Debt (PSND, excluding public sector banks) was £1,737.3bn at the end of May 2017 (86.5% of GDP), compared with £1,615.7bn (83.6% of GDP) at end-May 2016.

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Retail sales slipped 1.2% in May, to be 0.9% higher than a year earlier
15 June 2017

Retail sales (volume, GB) slipped back by 1.2% (MOM) in May, after a 2.5% (MOM, revised) increase in April, to be just 0.9% higher (YOY). The annual growth was last lower in April 2013. The ONS commented “increased retail prices across all sectors seem to be a significant factor in slowing growth”. Average store prices (excluding petrol stations) increased by 2.8% (YOY) in May, the largest growth since March 2012.   

Monthly data are highly erratic. The underlying pattern, as measured by the 3-month on 3-month estimate, showed retail sales grew by 0.6% (QOQ) in the 3 months to May, to be 2.3% higher YOY.

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Unemployment fell 50,000 in three months to April, total annual earnings growth 2.1%
14 June 2017

Employment increased by 109,000 (QOQ) in the three months to April (QOQ), to be 372,000 higher than a year earlier. Within the total, full-time men rose by 106,000 (YOY), whilst full-time women increased by 321,000. But part-time men rose by only 13,000, whilst part-time women fell by 67,000.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.8%, the joint highest since comparable records began in 1971:
·       The employment rate for men was 79.5%. The rate has not been higher since March to May 1991.
·       The employment rate for women was 70.2%, the joint highest female employment rate since comparable records began in 1971. 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 1.53mn in the three months to April, 50,000 fewer than the previous quarter and 145,000 down YOY. The unemployment rate (the proportion of the labour force (those in work plus those unemployed) that were unemployed) was 4.6%, compared with 5.0% 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%, down from 21.8% for a year earlier and the joint lowest since comparable records began in 1971.

Job vacancies remain strong. There were 777,000 job vacancies in the three months to May 2017 (sic), the second highest since comparable records began in 2001. The latest figure was 9,000 higher (QOQ) and 24,000 higher (YOY).

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.1% (total pay, including bonuses) and by 1.7% (regular pay, excluding bonuses) in the three months to April (YOY). CPIH inflation was 2.6% in April (2.7% in May), so real earnings growth fell about ½% in April.

All in all, this report suggests the labour market remains very firm.

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House prices inflation picked up to 5.6% in April, compared with 4.5% in March
13 June 2017

According to official data, UK house prices increased by 5.6% (YOY) in April, compared with 4.5% (revised up) in March. Even though April’s figure was higher than March’s, there has been a general slowdown in the annual growth rate since mid-2016.

The UK’s four countries continued to show different inflation rates in April: England (5.7%), Wales (4.2%), Scotland (6.8%) and Northern Ireland (4.3% (2017Q1)). In England, there was, as always, a significant range across the regions: East of England (8.1%), South West (6.8%), East Midlands (6.5%), West Midlands (6.0%), South East (5.9%), Yorkshire & Humberside (4.9%), London (4.7%), North West (4.1%) and the North East (0.6%).

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CPIH inflation rose to 2.7% in May
13 June 2017

The CPIH (Consumer Prices Index, including owner-occupiers’ Housing costs) is the ONS’s preferred measure of consumer prices inflation. The CPIH rose to 2.7% (YOY) in May, compared with 2.6% in April. The inflation rate has been increasing following a period of relatively low inflation in 2015, and is the highest since April 2012. Rising prices for recreational and cultural goods and services was the main contributor to the increase in the rate in May. There were smaller up ward contributions from increased electricity and food prices. These upward contributions were partially offset by falls in motor fuel prices, and air and sea fares (the latter two influenced by the timing of Easter in April this year).

The inflation rate for goods was 3.0% in May (2.4% in April), whilst the rate for services slipped to 2.6% in the month (2.8% in April). The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) was 2.5% (2.4% in April). The CPI inflation rate was 2.9% (YOY) in May, up from 2.7% in April.

Turning to producer prices inflation, the rate of increase in factory gate prices appears to be stabilising reflecting the fact that manufacturing input costs have largely fallen MOM since January. Producer output (factory gate) prices rose by 3.6% in the year to May, unchanged from April and March (table 4). The MOM increase was just 0.1% in May.

The inflation rates for producer input prices (materials and fuel bought by UK manufacturers for processing), were trending strongly upwards until January 2017, reflecting higher commodity prices and the effects of the weaker currency. But they have moderated since, partly reflecting the recent strengthening of sterling (prior to the General Election on 8 June). The annual increase in May fell back to 11.6%, compared with April’s 15.6% (table 1). And prices of imported materials and fuels rose by 11.8% (YOY) in May compared with April’s 14.7% (table 2). Crude oil increased 20.0% (YOY) in May (table 3).

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Trade (goods & services) deficit narrowed in April, to £2.1bn
9 June 2017

The total trade (goods & services) deficit was £2.1bn in April, compared with £3.9bn in March. The balances for both goods and services improved. The visible trade deficit fell to £10.4bn in April (£12.0bn in March), as imports fell (4.4% (MOM)) more than exports (0.5% (MOM)). The services surplus was estimated to be £8.3bn in April (£8.2bn in March). Services exports were 42.5% of total exports in April. On a trend basis, services exports are increasing as a proportion of total trade.

Turning to the area analysis of the goods figures for April, the UK recorded deficits with EU and non-EU countries of £8.3bn and £2.1bn respectively. A geographical breakdown of services trade is not yet available. The largest country deficits in April were recorded with Germany (£2.7bn) and China (£1.9bn). There were also sizeable deficits with the Netherlands (£1.6bn), Norway (£1.0bn), Belgium-Luxembourg (£1.0bn) and Italy (£0.7bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect. Surplus countries included the US (£1.0bn) and Switzerland (£0.6bn).

The ONS reported that the trade deficit (goods and services) for 2017Q1 had been revised down by £1.3bn to £9.3bn since the last release.

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Production output grew 0.2% in April
9 June 2017

Industrial production (15% of GDP) increased by a less-than-expected 0.2% (MOM) in April. Manufacturing rose 0.2% (MOM) and electricity and allied industries increased 2.9% (MOM). But mining and quarrying output (including North Sea oil) shrank 0.6% and water and allied industries fell 1.4%. Industrial output in April 2017 was 0.8% less than in April 2016, with energy supply providing the largest downward contribution, falling 7.4% (YOY).

In the 3 months to April industrial production was 1.2% (QOQ) lower than in the previous 3 months, dragged down by mining and quarrying (-1.3%), manufacturing (-0.7%, reflecting a fall in the highly volatile pharmaceutical sector) and electricity and allied industries (-5.8%, reflecting mild weather). Water and allied rose 0.8% (QOQ). Turning to annual comparisons, production in the 3 months to April was up 1.0% (YOY), mainly due to a 1.7% (QOQ) rise in manufacturing.

Separately the ONS reported that construction output disappointingly fell by 1.6% in April (MOM), driven by falls in both repair and maintenance and all new work, to be 0.6% lower than a year earlier. But the ONS also noted that output had been revised up for 2017Q1 – from 0.2% (QOQ) to 1.1% (QOQ). This would “lead to a 0.05% revision to GDP, all else being equal.”

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Markit Surveys for May mixed, but growth continues
5 June 2017

The much-followed Markit/CIPS surveys for the manufacturing and services sector suggested some slowdown, but construction rebounded.
·       The Markit/CIPS manufacturing PMI was a resilient 56.7 in May, a little below April’s three-year high of 57.3, and still showed solid growth. Manufacturing production and new orders both expanded at above survey average rates. Companies benefited most from the continued strength of the domestic market, but there was also a solid increase in new export business (partly reflecting the weaker pound). (Data released on 1 June 2017.)
·       The Markit/CIPS construction PMI rebounded to a 17-month high in May, helped by the fastest upturn in residential work since end-2015. The PMI was 56.0 in May, up sharply from 53.1 in April. In addition to the buoyant residential sector, there were solid rises in civil engineering and commercial building. (Data released on 2 June 2017.)
·       The Markit/CIPS services PMI slowed to 53.8 in May, still well above the 50 no-change figure, compared with 55.8 in April. There was a slowdown in new orders, partly reflecting delays in decision-making ahead of the General Election and heightened economic uncertainty. Looking ahead, service sector forms were relatively upbeat about their growth prospects. (Data released on 5 June 2017.)
·       Markit said the three surveys collectively were consistent with GDP growing at a rate of 0.5% (QOQ) in 2017Q2, after having lost some momentum in 2017Q1, albeit with the slowing in May posing some downside risks to the near-term outlook.  

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April’s mortgage approvals slip further
31 May 2017

The number of mortgage approvals for house purchase slipped further in April to 64,645, compared with March’s 66,043, and were lower than the average for the previous six months (67,319), 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 stock of total lending to individuals (secured and unsecured) rose to £1,532.2bn in April, of which 87% was secured on dwellings. The growth rate was 3.8% (YOY), compared with March’s 3.6% (table G). Within the total:
·       The amount outstanding on lending secured on dwellings rose to £1,333.8bn, to be up 2.8% (YOY), compared with March’s 2.7% (table H).
·       The amount outstanding on unsecured consumer credit rose to £198.4bn, an increase of 10.3% (YOY), compared with March’s 10.2% and February’s 10.5% (table J). The amount outstanding was still down on the £208bn peak of September 2008.

Total loans (including overdrafts) to non-financial businesses grew £1.8bn in April, whilst the growth rate was 2.6% (YOY). March’s growth rate had been 2.2% (table M). Within the total:
·       Loans to SMEs (defined as turnover of less than £25 million) fell by £0.3bn, whilst the growth rate was 1.4% (YOY).
·       Loans to large businesses increased by £2.1bn, whilst the growth rate was 3.3% (YOY).

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GDP growth revised to 0.2% in 2017Q1
25 May 2017

GDP growth for 2017Q1 was revised down to 0.2% (QOQ) but was still 1.9% higher than a year earlier. This compares with a rise of 0.1% (revised) in 2016Q1, 0.6% in 2016Q2, 0.5% in 2016Q3 and 0.6% (revised) in 2016Q4. There is a suggestion of residual seasonality as growth was also relatively weak in 2015Q1 (0.2% (revised)), followed by quarterly rises of 0.5%, 0.3%, 0.7%.

GDP in 2017Q1 was 8.7% higher than the pre-downturn peak in 2008Q1, having surpassed it in 2013Q3. But GDP per head was flat (QOQ) in 2017Q1, to be only 1.7% above the GDP pre-downturn peak in 2008Q1, having surpassed it in 2015Q4.

Lower GDP growth in 2017Q1 was mainly due to the slowdown in services (79% of GDP), which grew by 0.2% (revised down) compared with 0.8% in 2016Q4. The slowdown in growth in 2017Q1 mainly came from the distribution, hotels and restaurants sector, with notable falls in some consumer-focused industries such as retail (reflecting rising prices). Industrial production (15% of GDP) grew by 0.1%, within which manufacturing (10% of GDP) rose 0.3%, mining and quarrying (2% of GDP) increased by 1.8% and water and allied (1% of GDP) increased 0.7%. But electricity and allied (1.5% of GDP) fell 4.3% reflecting the mild winter weather. Construction (6% of GDP) grew by 0.2%.

Turning to the expenditure side, household consumption rose 0.3% (QOQ), compared with 0.7% in 2016Q4. But gross fixed capital formation (GFCF) rose by 1.2%, making the biggest positive contribution to growth. The trade balance in goods and services significantly detracted from growth, with exports falling 1.6% (after rising in 2016Q4) whilst imports rose 2.7% (after falling in 2016Q4). The movement in exports was partly offset by the increase in the net acquisitions of valuables component. Non-monetary gold feeds into both components (exports and net acquisitions of valuables) but with opposite signs, making trading in non-monetary gold GDP neutral.  

Separately, the ONS reported that business investment increased by 0.6% (QOQ) in 2017Q1, encouragingly, to be 0.8%higher than a year earlier.  

Also separately, the ONS said the services sector grew by 0.2% (MOM) in March, to be 2.7% higher than a year earlier. The largest contribution to MOM growth came from transport, storage and communication.

 

 

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Parliamentary Committees: Evidence

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