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

21st May 2018

Economic Insight - 21 May 2018

Bank sees 2018Q1 as “temporary soft patch”, hinting interest rate rise “likely” this year

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Bank’s latest economic analysis.
Press Release

Bank sees 2018Q1 as “temporary soft patch”, hinting interest rate rise “likely” this year

Date: 21st May 2018

Bank sees 2018Q1 as “temporary soft patch”, hinting interest rate rise “likely” this year
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Bank’s latest economic analysis:
  • The Bank downgraded the GDP growth forecast for 2018 to 1.4% (1.8% in February), but left 2019 and 2020 unchanged (at 1.7%).
  • They noted that 2018Q1 was “a temporary soft patch” and expected growth to be stronger in 2018Q2.
  • They downgraded their CPI forecasts. CPI inflation was projected to be 2.1% in 2019Q2, almost at target.
  • The Governor was reported as saying a rate increase is “likely” this year.
  • Official data in the past fortnight have confirmed the “soft patch” in 2018Q1, but the labour market remains remarkably robust.
Brexit developments in the past fortnight included:
  • The EU (Withdrawal) Bill passed through the Lords. The Government was defeated on 15 amendments in all. The Bill will return to the Commons for consideration of the amendments.
  • There were further Cabinet discussions on the Irish border issue. It was reported the Brexit Cabinet sub-committee had agreed to a version of a “backstop solution” that would tie the UK to the EU’s Customs Union after the transition period.

Oil prices have been higher than expected at the start of the year, reflecting tighter fundamentals and geopolitical tensions (including President Trump’s withdrawal from the Iraq deal, threatening sanctions on Iran).

Ruth Lea said, “There was undoubtedly a “soft patch” in 2018Q1, but growth should pick up as 2018 progresses, not least of all because the squeeze on real earnings is easing. Given the tightening labour market and run-down of spare capacity, interest rates should rise this year. A rise of 0.5% in 2018 would be quite containable, but I expect the Bank to tighten by no more than 0.25% by end-year.”

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
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8th May 2018

Economic Insight - 8 May 2018

First quarter growth weakness should be temporary, but no interest rate hike soon

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments (8 May):
Press Release

First quarter growth weakness should be temporary, but no interest rate hike

Date: 8th May 2018

First quarter growth weakness should be temporary, but no interest rate hike soon

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments (8 May):
  • GDP growth was a weaker-than-expected 0.1% (QOQ), but the figure was depressed by bad weather factors and may have been depressed by residual seasonality.
  • The next MPC announcement is on 10 May; it is highly unlikely the Bank Rate will be increased, though it is reasonable to expect one 0.25% hike by end-2018.
  • The April Markit surveys suggested continued subdued growth, whilst the public sector borrowing data were better than expected, suggesting a continued improvement in the public finances.

There have been several key Brexit developments in the past fortnight:
  • The Report Stage of the EU (Withdrawal) Bill is continuing in the House of Lords. The Government has now been defeated on ten amendments. The two most important, arguably, relate to negotiating a customs union and insisting on Parliamentary approval of the outcome of negotiations with the EU.
  • The European Commission released a note outlining the topics for discussions on the future UK-EU framework at forthcoming meetings.

Both the ECB and the European Commission remain fairly upbeat about the economic prospects for the Eurozone, despite evidence of a recent softening in activity.

Ruth Lea said, “Recorded GDP growth for 2018Q1 was disappointing, but the weather was unseasonably cold in March and there does seem to be some evidence of residual seasonality in first quarter figures. Growth should be better for the rest of the year, even if there are no underlying improvements. There are, however, reasons to believe that there will be underlying improvements, not least of all the recovery in real earnings growth driving household consumption and hence GDP growth.”
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


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123456 (2017)(2016)

Comment, at a glance

Public sector net deficit £7.8bn in April 2018
22 May 2018

Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a deficit of £7.8bn in April 2018, compared with £9.0bn in April 2017. This was the lowest April net borrowing since 2008.

April is, of course, the first month of FY2018 and provides little guidance as to the outcome for the full financial year. The OBR forecast public borrowing of £37.1bn for the Spring Statement, around one quarter of the borrowing in FY2009, at the peak of the financial crisis. Borrowing was £153.0bn in FY2009.    

The PSNB for FY2017 (12 months) was revised down to £40.5bn (from £42.6bn), compared with £46.2bn 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 £4.7bn higher. Of this £40.5bn of PSNB, £41.8bn related to 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 £1.3bn. This current budget deficit surplus was the first annual surplus since the financial year ending March 2002 (FY2001).

Public Sector Net Debt (PSND) was £1,777.3bn at the end of April 2018 (85.1% of GDP), compared with £1,720.5bn (84.8% of GDP) at end-April 2017.

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Labour productivity decreased 0.5% in 2018Q1
15 May 2018

The ONS reported that the flash estimate of output per hour (their main measure of labour productivity, “productivity hours”) decreased 0.5% (QOQ) in 2018Q1, after a rise of 0.7% (QOQ) in 2017Q4, but was 1.0% higher than a year earlier. The quarterly increase reflected a 0.6% rise in total hours worked, only partly offset by a weak 0.1% increase in GDP.

Output per worker also fell 0.5% (QOQ) in 2018Q1, reflecting the 0.6% (QOQ) rise in employment and 0.1% increase in GDP.

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Unemployment rate was 4.2% in three months to March, regular annual earnings growth 2.9%
15 May 2018

Employment grew by 197,000 (QOQ) in the three months to March, and was 396,000 higher than a year earlier. Within the total, full-time men rose by 123,000 (YOY) and full-time women increased by 133,000, whilst part-time men increased by 39,000 (YOY) and part-time women rose by 101,000. The increase in full-time employment was therefore 256,000 (YOY), whilst part-time employment rose 140,000.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.6%, compared with 74.8% a year earlier and the highest since comparable records began in 1971:
·       The employment rate for men was 80.0%, the highest employment rate since February-April 1991.
·       The employment rate for women was 71.2% and the highest 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 1.425mn in the three months to March, 46,000 lower than the previous quarter and 116,000 down YOY. The unemployment rate (the proportion of the labour force [those in work plus those unemployed] that were unemployed) was 4.2%, compared with 4.6% a year earlier and the joint lowest since 1975. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 21.0%, lower than for a year earlier (21.5%) and the joint lowest since comparable records began in 1971.

Job vacancies remain strong. There were 806,000 job vacancies in the three months to April 2018 (sic), near record levels. The number was down 16,000 (QOQ) but 17,000 higher (YOY).

Average weekly earnings for employees in Great Britain 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 March (YOY). Earnings growth is picking up modestly. The ONS said that “…latest estimates show that average weekly earnings for employees in GB in real terms (adjusted for price inflation) increased by 0.4% excluding bonuses, but were unchanged including bonuses, compared with a year earlier”.

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

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Trade (goods & services) deficit widened in March to £3.1bn
10 May 2018

The total trade (goods & services) deficit widened to £3.1bn in March, compared with £1.2bn in February. The visible trade deficit increased to £12.3bn in March (£10.4bn in February), as exports rose 4.4% (MOM) whilst imports increased 8.1% (MOM). The services surplus was estimated to be £9.2bn in March (unchanged).  

In March, exports of goods were £28.9bn (55% of total trade) whilst exports of services were £24.0bn (45% of total trade). Services share of total trade is on a rising trend.

Turning to the area analysis of the goods figures for March, the UK recorded deficits with EU and non-EU countries of £8.6bn and £3.6bn respectively. A geographical breakdown of services trade is not yet available. The largest country deficit in March was recorded with Germany (£2.8bn). There were also sizeable deficits with Norway (£2.4bn, large monthly increase), China (£2.1bn), the Netherlands (£1.7bn), Belgium-Luxembourg (£1.1bn), Italy (£0.8bn) and Spain (£0.4bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect. Surplus countries included the USA (£1.4bn) and Ireland (£0.6bn).

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Construction output fell 2.7% in 2018Q1
10 May 2018

The ONS reported that construction output contracted 2.7% (QOQ) in 2018Q1, the biggest fall in the series since mid-2012, and was 2.7% (also) lower (YOY). The quarterly decline was driven by falls in both repair and maintenance and new work. Output fell by 2.3% (MOM) in March to be 4.9% down YOY. The ONS said it had received some anecdotal evidence that adverse weather conditions had adversely affected output in February and March.  

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Production output rose 0.6% in 2018Q1, manufacturing 0.2% higher
10 May 2018

Industrial production (14% of GDP) rose by 0.6% (QOQ) in 2018Q1, to be 2.0% higher YOY. The quarterly increase mainly reflected a 2.5% rise in energy supply (reflecting the lower-than-average temperatures), supported by a 2.2% increase in mining and quarrying and a, rather disappointing, 0.2% increase in manufacturing. Manufacturing output was 2.5% higher than in 2017Q1.

In the month of March, industrial production increased marginally, by 0.1% (MOM), to be 2.9% higher (YOY). Manufacturing, however, slipped 0.1% (MOM). The ONS commented “…survey led evidence suggests that the heavy snowfall in March 2018 had no significant impact on manufacturing output”. Despite the relative weakness in the recent manufacturing data, output in March was 2.9% higher YOY, as output had dipped in spring 2017.

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Markit Surveys for April showed subdued growth
3 May 2018

The much-followed Markit/CIPS surveys suggested some recovery in growth in April, after March’s disruptions, for construction and services. Manufacturing growth, however, weakened.  
·       The Markit/CIPS manufacturing PMI registered 53.9 in April, a 17-month low, compared with 54.9 in March. Rates of expansion eased for output, new orders and employment, in part reflecting a weakening in the growth of new work from abroad. Input costs and output prices moderated. (Data released on 1 May 2018.)
·       The Markit/CIPS construction PMI showed some recovery in April after March’s weather-related disruptions. It was 52.5 in April, compared with March’s 47.0. Residential work was by far the best performing category with the resumption of housebuilding activity after snow disruptions in March. (Data released on 2 May 2018.)
·       The Markit/CIPS services PMI increased to 52.7 in April, compared with March’s 51.7 (a 20-month low, affected by weather-related disruptions). However, April’s PMI still only signalled a moderate increase in service sector activity, with the growth rate the second-weakest since September 2016. Higher payroll costs continued to drive up operating expenses, placing a squeeze on margins. (Data released on 3 May 2018.)
·       Markit commented “…the overall expansion signalled by the three surveys in April was the second-weakest since the Brexit vote, pointing to a quarterly rate of GDP growth of around 0.2% at the start of 2018Q2.”

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March’s mortgage approvals slip further
1 May 2018

The number of mortgage approvals for house purchase slipped further to 62,914 in March, compared with February’s 63,78, according to the Bank of England’s latest “Money and credit” press release (table I). They were, moreover, lower than the previous six months average (64,544) and were still 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 stock of total lending to individuals (secured and unsecured) rose to £1,584.1bn in March, of which 87% was secured on dwellings. The growth rate was 4.0% (YOY), little changed from February’s 4.1% (table G). Within the total:
·       The amount outstanding on lending secured on dwellings rose to £1,375.0bn, to be up 3.3% (YOY), unchanged from February (table H).
·       The amount outstanding on unsecured consumer credit was unchanged at £209.2bn, an increase of 8.6% (YOY), compared with February’s 9.4% (table J). The amount outstanding now exceeds the £208bn peak of September 2008, prior to the Great Recession.

Total loans (including overdrafts) to non-financial businesses rose £4.0bn in March, whilst the growth rate was 3.0% (YOY). February’s growth rate was 2.2% (table M). Within the total:
·       Loans to SMEs (defined as turnover of less than £25 million) rose £0.5bn, whilst the growth rate was just 0.2% (YOY).
·       Loans to large businesses increased by £3.5bn, whilst the growth rate was 4.7% (YOY).

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Services rose 0.4% in three months to February
27 April 2018

In the three months to February services output increased by 0.4% (QOQ), to be 1.3% higher YOY. Business services and finance continues to be the largest contributor to the three-month on three-month growth.

In the month of February, the ONS estimated that services output slipped 0.2% (MOM), the weakest since February 2017, to be just 0.6% higher than a year earlier. Computer programming made the largest contribution to the month-on-month fall.

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GDP growth was 0.1% in 2018Q1
27 April 2018

GDP (preliminary estimate) increased by a less-than-expected 0.1% in 2018Q1 to be 1.2% higher than a year earlier. This compares with a 0.5% rise in 2017Q3 and a 0.4% increase in 2017Q4. GDP per head was estimated to have slipped 0.1% in 2018Q1, to be 0.6% higher YOY. The first quarter figures may be affected by residual seasonality as growth in 2016Q1 was a weak 0.2% (after a 0.7% rise in 2015Q4) and growth in 2017Q1 was 0.3% (after a 0.7% increase in 2016Q4). In addition, the ONS commented “…while some impacts on GDP from the snow in 2018Q1 have been recorded for construction and retail sales, the effects were generally small, with very little impact observed in other areas of the economy”.

The dominant services sector (79% of GDP) increased by 0.3% (QOQ) and was the largest contributor to growth. The 0.3% increase was, however, relatively weak by recent standards. Industrial production (now estimated to be 14% of GDP) rose 0.7% (QOQ), but manufacturing (10% of GDP) increased by only 0.2%. Mining and quarrying, one of the main drivers of growth in 2018Q1, grew by 3.5% (QOQ). This was due largely to the recovery from the fall in oil and gas production in 2017Q4, with the Forties pipeline system working at normal capacity this quarter after several days of closure in 2017Q4. Electricity and allied industries grew by 2.3% (reflecting below-average temperatures in February and March), but water supply and allied industries fell by 0.3%. Construction (6% of GDP) fell by 3.3% (QOQ) and was the largest downward pull on GDP.

The preliminary estimate is based on output data and there is breakdown by expenditure components. The ONS said that the data content for the 2018Q1 preliminary estimate was 45% of total output data. 

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