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


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

16th January 2017

Economic Insight - 16th January 2017

Brexit update: and trade can thrive under WTO rules

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest Brexit news (16 January).
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3rd January 2017

Economic Insight - 03rd January 2017

The UK economy: still cautiously encouraging

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data (3 January).
Press Release

The UK economy: still cautiously encouraging

Date: 3rd January 2017

The UK economy: still cautiously encouraging

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:
  • The ONS revised GDP growth up to 0.6% in 2016Q3, whilst revising growth down to 0.6% in 2016Q2. There was, therefore, no slowdown in growth in 2016Q3.
  • Retail sales growth remained strong in October, as did services sector growth.
  • The labour market remains firm, with the unemployment rate at 4.8%.
  • The Bank of England’s latest Agents’ report was quite positive.
  • But the current account of the balance of payments widened in 2016Q3 and the public finances remained significantly in deficit.
  • Moreover, inflationary pressures are picking up, reflecting higher oil prices and the effects of the weaker pound. Nevertheless, CPI inflation, at 1.2% in November, remains well within the Bank’s 2% target.
  • The Bank left monetary policy unchanged at its December meeting.

Developments within the Eurozone include:
  • The Italian government has agreed a €20bn fund to support the Italian banking sector, including Monte dei Paschi (Italy’s most troubled bank). Any state “bailout” must comply with the EU’s new rules for bank rescues.
  • There has been a “spat” between Greece and its EU creditors. A recently agreed debt-relief scheme was put on hold because the Greek government implemented a fiscal handout without consulting its EU creditors. It has, however, been agreed that talks on the scheme will be resumed in January.
  • There are key elections in Eurozone countries in 2017: the Netherlands (March), France (April and possibly May) and Germany (Autumn).

The US Fed raised interest rates in December, as expected, pencilling in three more rises in 2017, three more rises in 2018 and three further rises in 2019. Donald Trump, with his promises of fiscal expansion, will be inaugurated on 20 January.

Ruth Lea said, “the British economy performed better than expected in 2016Q3, in the wake of the Brexit vote. And there are sound reasons for economic optimism, albeit cautious, going forward as the talks on Brexit get under way. The Prime Minister is due to trigger Article 50, triggering the process of negotiating our withdrawal from the EU, by the end of March.”

For full story:

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482  
Follow Ruth on Twitter @RuthLeaEcon

Bell Pottinger:
Dan de Belder
020 3772 2561

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1 (2016)(2015)

Comment, at a glance

Unemployment fell 52,000 in three months to November, total annual earnings growth 2.8%
18 January 2017

Employment was little changed (at 31.8m) in the three months to November (QOQ), and 294,000 higher than a year earlier. Within the total, full-time workers and part-time workers rose by 209,000 and 86,000 respectively (YOY). The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, virtually unchanged compared with the three months to August, but higher than for a year earlier (74.0%).

Unemployment was 1.60m in the three months to November, 52,000 fewer than the previous quarter and 81,000 down YOY. The unemployment rate was 4.8%, compared with 5.1% a year earlier. It has not been lower since July to September 2005. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 21.7%, higher than for the three months to August (21.5%), but lower than for a year earlier (21.9%).

Job vacancies remain very strong. There were 748,000 job vacancies in the three months to December 2016 (sic). This was little changed compared with the previous quarter or with a year earlier.

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.8% (including bonuses) and by 2.7% (regular pay, excluding bonuses) in the three months to November (YOY). CPI inflation in December was +1.6%, so earnings growth is still outstripping prices inflation.

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

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House prices inflation firmed to 6.7% in November
17 January 2017

UK house prices inflation was 6.7% (YOY) in November, compared with 6.4% in October (revised), continuing the strong growth seen since the end of 2013. The Land Registry said that housing market indicators for November suggested a continued period of modestly increasing demand and a steady growth in price levels.

The UK’s four countries showed very different inflation rates in November: England (7.2%), Wales (4.1%), Scotland (3.3%) and Northern Ireland (5.4% (2016Q3)). In England, there was, as always, a significant range across the regions: East of England (10.5%), South East (8.6%), London (8.1%), West Midlands (7.4%), East Midlands (7.3%), South West (5.7%), North West (5.2%), Yorkshire & Humberside (5.1%) and the North East (3.2%).

Average house prices rose by 1.1% (MOM) in November. The annual inflation rate for first-time buyers was 6.6%, compared with 6.9% for former owner-occupiers (existing owners) (Land Registry data, GB only).

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CPI inflation picks up to 1.6% in December
17 January 2017

The Consumer Prices Index (CPI) increased to 1.6% (YOY) in December 2016, compared with a 1.2% rise (YOY) in November. The rise was a little higher than expected. The rate in December was the highest since July 2014, when it was also 1.6%. The ONS said that the main contributors to the increase in the rate were rises in air fares and the price of food, along with prices for motor fuels, which fell by less than they did a year ago. Even though CPI inflation is still within the Bank of England’s 2% “target”, it is clearly on an upward trend, reflecting the effects of the recent depreciation of sterling.

The CPI inflation rate for goods was 0.7% in December (0.2% in November), whilst the rate for services rose to 2.5%, in the month (2.2% in November). The core rate of inflation (excluding energy, food, alcoholic beverages & tobacco) increased to 1.6% in December (1.4% in November).

On 10 November 2016, the ONS announced that CPIH (which includes an element of owner occupiers’ housing costs (OOH)) would become their preferred measure of inflation from March 2017. CPIH uses an approach called rental equivalence (the rent paid for an equivalent house) to measure OOH. CPIH was 1.7% (YOY) in December (1.4% in November). CPIH stands for the Consumer Prices Index, including owner-occupiers’ Housing costs.

Producer output prices rose by 2.7% in the year to December 2016, compared with 2.4% (YOY) in November. The ONS said the rise was mainly as a result of falling prices a year ago (“base effects”), as growth was relatively flat on the month. The rise was the sixth consecutive period of annual growth following 2 years of falls. Even though output prices inflation is rising, “factory gate” inflation remains fairly modest.

Input prices, materials and fuel bought by UK manufacturers for processing, have been trending strongly upwards. The annual increase in December was 15.8% (13.3% in November). Prices of imported materials and fuels was the largest driver of input price growth, which is largely a result of sterling depreciation and a recovery in global crude oil prices. Imported input prices rose by 16.9% (YOY) in December (14.6% in November). Crude oil increased 56.7% (YOY) in December.

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£4.2bn trade deficit in November, compared with £1.5bn in October
11 January 2017

The total trade (goods & services) deficit widened to £4.2bn in November, compared with £1.5bn in October. (It had been £5.3bn in September.) Monthly data are erratic but the trend seems to be fairly flat at present.

Within total trade, the visible trade deficit rose to £12.2bn in November, compared with £9.9bn in October. Exports of goods increased by £0.7bn (MOM), whilst imports rose by £3.0bn. Within the goods total the oil deficit narrowed to £0.7bn, but the deficit on non-oil goods increased to £11.4bn. The services surplus was estimated to be £8.0bn in November, compared with October’s £8.3bn. Services exports were 42.9% of total exports in November. On a trend basis, services exports are increasing as a proportion of total trade.

Turning to the area analysis of the goods figures for November, 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 deficits in November were recorded with Germany (£3.0bn) and China (£2.4bn). There were also sizeable deficits with Norway (£1.4bn), the Netherlands (£1.2bn), Belgium-Luxembourg (£1.1bn), Italy (£0.7bn) Spain (£0.5bn) and France (£0.5bn). 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 US (£1.35bn) and the Irish Republic (£0.15bn).

The recorded share of UK goods exports going to the EU, which is also distorted by the Rotterdam-Antwerp Effect, was 49.5% in November. On a trend basis, the share of goods exports going to the EU is declining.

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Production output recovers in November
11 January 2017

Industrial production (15% of GDP) recovered by 2.1% (MOM) in November, after a 1.1% decline in October, to be 2.0% higher than a year earlier. The increase reflected a pick-up in mining and quarrying output (including North Sea oil) following the end of a maintenance period in the oil and gas industry. (Mining and quarrying jumped by 8.2%, after October’s fall.) Manufacturing (10% of GDP) grew 1.3% (MOM), following a 1.0% fall in October, to be 1.2% higher (YOY). The largest contribution came from pharmaceuticals, which can be highly erratic. Electricity and allied industries grew 1.9% (MOM) whilst water and allied industries slipped 0.1% (MOM).

In the 3 months to November, industrial production and manufacturing were 8.3% and 5.4% respectively below their levels reached in the pre-recession GDP peak in 2008Q1.

Separately the ONS reported that construction output had slipped 0.2% (QOQ) in November, largely due to a contraction in non-housing repair and maintenance, though was 1.5% higher than a year earlier. On a trend basis, construction output seems fairly flat.

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Markit Surveys for December show pick-up in growth
5 January 2017

The much-followed Markit/CIPS surveys for the three main economic sectors indicated an across-the-board pick-up in growth in December.

·         The Markit/CIPS manufacturing PMI was 56.1 in December, a 30-month high, compared with 53.6 in November and well above the long-run average (51.5). Gains were seen in the three sub-sectors: consumer, intermediate and investment goods. New export business rose for the 7th consecutive month, with increased levels of new work from the USA, Europe, China, Middle East, India and other Asian markets. The weak exchange rate continued to boost export competitiveness but added to cost pressures. (Data released on 3 January 2017.)

·         The Markit/CIPS construction PMI was 54.2 in December, compared with 52.8 in November, signalling “a robust and accelerated expansion of overall construction output”. New order growth hit an 11-month high. Residential building activity remained the best performing category, whilst there was a robust pick-up in civil engineering projects. Commercial construction increased only marginally. (Data released on 4 January 2017.)

·         The Markit/CIPS services PMI firmed further, ending 2016 with “strong expansion”. The overall Business Activity Index was 56.2 in December, up on November’s 55.2, signalling the fastest expansion since July 2015. There was growth in both new business and outstanding business and continuing growth in employment. Cost pressures remained elevated. (Data released on 5 January 2017.)

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November’s mortgage approvals for house purchase modestly stronger
4 January 2017

Mortgage approvals for house purchase firmed a little in November to 67,505, compared with October’s 65,371 (revised), and were higher than the average for the previous six months (64,178), according to the Bank of England’s latest “Money and credit” press release (table I). But they were still 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 interest rate cut in August may have stimulated the housing market, amid general market confidence. 

 The stock of total lending to individuals (secured and unsecured) rose to £1,511.5bn in November, of which over 87% was secured on dwellings. The growth rate was still fairly modest, at 4.0% (YOY), unchanged from October (table G). Within the total:
·         The amount outstanding on lending secured on dwellings rose to £1,319.3bn, to be up 3.1% (YOY), unchanged from October (table H).
·         The amount outstanding on unsecured consumer credit rose to £192.2bn, a robust increase of 10.8% (YOY), compared with 10.6% in October (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 were £450.6bn in November, down on October’s £452.7bn. But the growth rate was unchanged at 3.1% (YOY) (table M). Within the total:
·         Loans to large businesses slipped to £287.1bn, but the growth rate was unchanged at 4.0% (YOY).
·         But loans to SMEs (defined as turnover of less than £25 million) was marginally higher at £163.5bn, whilst the growth rate eased to 1.6% (YOY).

Net lending (excluding overdrafts, gross lending minus repayments) to large businesses was +£0.2bn and to SMEs was +£0.1bn (table N, growth rates are not published).

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Balance of payments (current account) deficit widened in 2016Q3
23 December 2016

The current account of the balance of payments showed a deficit of £25.5bn (5.2% of GDP) in 2016Q3, compared with £22.1bn (4.6% of GDP) in 2016Q2.

The components of the current account changed in 2016Q3 as follows:

·         The trade deficit increased to £13.6bn compared with £7.4bn in 2016Q2.

·         Within total trade the visible trade deficit was £38.7bn (compared with £30.2bn in 2016Q2), as exports fell £1.1bn whilst imports rose by £7.4bn. But the services surplus improved. It was £25.1bn, compared with £22.9bn in 2016Q2.

·         The primary account (mainly investment income) deficit fell to £5.0bn (£8.7bn in 2016Q2). Direct investment showed a surplus of £3.6bn (compared with a deficit of £0.8bn in 2016Q2). There was, however, a modest (£0.8bn) widening in the deficit on portfolio investment (to £6.2bn). 

·         The secondary account (current transfers) deficit widened to £6.9bn (£6.1bn in 2016Q2). Payments increased more than receipts.

In 2016Q3 the disparate performance of EU and non-EU transactions remained stark. Britain recorded a current account deficit of £20.9bn with EU countries, though down on the deficit of £22.3bn for 2016Q2. The goods deficit alone was £23.6bn (the services surplus was £9.9bn). With non-EU countries, there was also a current account deficit, but it was only £4.6bn in 2016Q3, compared with a small surplus (£0.25bn) in 2016Q2. The EU share of UK total credits was 46.4% in 2016Q3, exceeded by the non-EU share (53.6%). The EU share is in secular decline.


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GDP growth revised up to 0.6% in 2016Q3
23 December 2016

GDP (third estimate) increased by 0.6% in 2016Q3 (revised from 0.5%) to be 2.2% higher than a year earlier (revised from 2.3%). This compares with a rise of 0.3% in 2016Q1 and 0.6% in 2016Q2. The upward revision reflected revisions in the output of business services and financial industries. GDP in 2016Q3 was 8.1% higher than the pre-recession peak (2008Q1) and was the 15th consecutive quarter of expansion since the beginning of 2013. From peak (2008Q1) to trough (2009Q2) the economy shrank 6.3%.

In 2016Q3 GDP per head increased by 0.4% (QOQ). It is now 1.5% above the pre-downturn peak in 2008Q1, having surpassed it in 2015Q3.

Growth was driven by the services sector (79% of the economy), which rose by 1.0% (QOQ). But production (15% of GDP) fell by 0.4%, within which manufacturing fell 0.8%, after a strong second quarter, though mining and quarrying bounced by 4.3%. Electricity, gas, steam and air conditioning supply industries decreased by 4.2%, whilst water supply and sewerage fell 0.1%. Construction output (6% of output) fell 0.8%.

Turning to the expenditure side, the main driver of growth was household consumption, which increased 0.7% (QOQ). The household saving ratio fell from 6.1% in 2016Q2 to 5.6% in 2016Q3, as real household disposable income slipped by 0,.6% (QOQ). Gross fixed capital formation (GFCF) grew by 0.9% (QOQ) (within which business investment rose 0.4% (QOQ, revised)), to be 0.5% higher (YOY). General government consumption was flat whilst a deterioration in the trade balance in goods and services depressed growth. Exports of goods and services fell 2.6% (QOQ) whilst imports rose 1.4%.

Separately the ONS reported that services grew by 0.3% (MOM) in October, to be 3.2% higher than a year earlier. Over the year, all of the 4 main components of the services industries increased (the components are: distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services).

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Public sector net borrowing deficit £12.6bn in November
21 December 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a deficit of 12.6bn in November 2016 compared with a deficit of £13.2bn in November 2015. The fall was less-than-expected. Of this £12.6bn, £9.9bn related to the cost of the “day-to-day” activities of the public sector (the current budget deficit), while £2.7bn 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 eight months of FY2016 was £59.5bn, £7.7bn down on the £67.2bn recorded for the first eight months of FY2015. The OBR forecast a total for FY2016 of £68.2bn in November’s Autumn Statement, compared with an outturn of £75.4bn (revised) for FY2015, an implied improvement of just £7.2bn. (The March Budget forecast for FY2016 had been £55.5bn.) The OBR’s revised forecast should be met easily.  

Public Sector Net Debt (PSND) was £1,655.1bn at the end of November 2016 (84.5% of GDP), compared with £1,596.5bn (84.4% of GDP) at end-November 2015. The Chancellor announced in the Autumn Statement that the PSND as a share of GDP must be falling by the end of this Parliament.

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Parliamentary Committees: Evidence

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