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

19th October 2020

Economic Insight - 19 October 2020

 Coronavirus crisis: GDP growth disappoints in August
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:
Press Release

Coronavirus crisis: more Covid restrictions and the labour market weakens

Date: 19th October 2020

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK developments:
  • The Prime Minister announced the Government’s new three-tiered system of Covid Alert Levels for England on 12 October.
  • The three tiers are tier 1 (“medium”), tier 2 (“high”) and tier 3 (“very high”, including Liverpool). Greater London was transferred from tier 1 to tier 2 on 17 October.
  • The overall effect of these decisions is to tighten restrictions on the economy, with the hospitality sector particularly affected..
  • The labour market is weakening. The unemployment rate rose to 4.5% in the three months to August, whilst redundancies increased a record 114,000 in the quarter to 227,000 and employment fell 153,000. The fall in employment was driven by workers aged 16-24 and over 65.
  • There was some improvement in vacancies in the three months to September and actual hours worked in the three months to August. But they were both still well down on levels prior to the pandemic.
  • Total earnings growth in nominal terms was flat (YOY) in the three months to August, whilst in real terms it fell by 1.2% (YOY).
The IMF’s latest forecast:
  • The IMF’s October forecast was less pessimistic, on the whole, than in June. World GDP is now expected to fall by 4.4% in 2020 (5.2% in June).
  • US GDP is now expected to contract by 4.3% in 2020, whilst the Eurozone’s GDP is projected to fall by 8.3%. Within the Eurozone, German GDP could fall by 6.0% in 2020, compared with 9.8% in France and 10.6% in Italy.
  • The IMF made only minor adjustments to their UK forecasts, with a contraction of 9.8% projected for 2020 (10.2% in June) followed by a 5.9% part-recovery in 2021 (6.3% in June).
  • China is expected to grow by 1.9% in 2020, followed by a buoyant 8.2% in 2021.
  • The pandemic has led to significant increases in the General Government deficit/GDP and debt/GDP ratios. UK net borrowing is expected to rise to 16.5% of GDP in calendar year 2020, whilst debt is projected to be 108% of GDP in 2020.
Brexit update:
  • The Prime Minister’s deadline of 15 October for securing agreement on the UK-EU future relationship has passed, with, apparently, little progress made in recent weeks, including at the EU Summit (15-16 October).
  • The Prime Minister announced on 16 October that UK “should prepare for a “no deal” outcome, trading under WTO rules”. He added that the Summit had appeared “to rule out a Canada-style deal.”
  • The UK has not ruled out further negotiations on the future relationship, providing the EU changes its approach to the UK’s wish for a Canada-style deal.
Ruth Lea said “The is little doubt the labour market is now deteriorating. Moreover, the deterioration will almost certainly accelerate significantly in forthcoming months, assuming the furlough scheme ends at end-October, as planned. Rising unemployment, coupled with the latest Covid restrictions on the economy, increases the risk that the economy could not just stagnate in 2020Q4, but could contract, raising the risk of a “double-dip” recession”.

For full story: 

Press enquiries:

Arbuthnot Banking Group PLC: 

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

Sam Cartwright 
020 7379 4415

Download full article

12th October 2020

Economic Insight - 12 October 2020

Coronavirus crisis: GDP growth disappoints in August
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:
Press Release

Coronavirus crisis: GDP growth disappoints in August

Date: 12th October 2020

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:
  • GDP rose a disappointing 2.1% (MOM) in August, suggesting a significant loss of momentum in the recovery despite the further relaxation in restrictions in the month and the supportive Eat Out to Help Out Scheme.
  • In August, services rose 2.4% (MOM), production rose just 0.3% whilst construction was 3.0% higher.
  • Significantly, the “accommodation and food services” grew over 70% in August, contributing 1.25 percentage points to the 2.1% growth in GDP in the month, suggesting that the rest of the economy contributed less than 1 percentage point to growth. The “food services” sub-sector, specifically, was boosted by the one-off Eat Out to Help Out Scheme, whilst the “accommodation” sub-sector was boosted by domestic “staycations”, reflecting international travel restrictions.
  • Given the imposition of further restrictions during the month of September, it can be expected that growth will be very weak in the month. Moreover, given the expectation of the imposition of further restrictions in October, the economy can be expected to continue to underperform. If GDP were to stagnate for the September-December period, which seems entirely plausible, GDP would fall by nearly 10% (YOY) in 2020.
  • Markit surveys suggested that growth would continue in September, albeit at a slower rate than in August. However, it is likely that much of the survey work would have be done prior to the latest announcements (especially that of 22 September) on the tighter restrictions.
  • SMMT data showed that car production in the 8 months to August was down 40% (YOY), whilst new car registrations in the 9 months to September were 33% down (YOY).
  • The housing market remains buoyant, reflecting pent-up demand and the stamp duty holiday. According to the Halifax house prices rose 7.3% (YOY) in September.
  • There was an “underlying” (excluding precious metals) total trade surplus of £7.7bn in the three months to August, as the goods deficit was more than offset by the services surplus.
On policy:
  • The Chancellor announced on 9 October an expansion to the Job Support Scheme (JSS) for firms that were “required to close their premises due to coronavirus restrictions” The government will pay two thirds of the affected employees’ salaries. The original JSS was included in the Winter Economy Plan (24 September).
  • The National Audit Office (NAO) concluded that defaults on the Bounce Back Loan Scheme (BBLS) could cost the government of £15bn-£26bn.
Other news:
  • The September Global Financial Centres Index (GFCI), compiled by Financial Centre Futures (FCF), found that New York retained its first place in the index, but, encouragingly, second-placed London had “made up ground” on New York in terms of the ratings.
  • By industry sector (of which there are eight), London ranked second behind New York in banking, investment management, professional services and government & regulatory matters, but was fourth for finance, fintech and trading and fifth for insurance.
Ruth Lea said “The August GDP data were very disappointing, especially as there had been such a boost to output in the “food services” sub-sector from the Eat Out to Help Out Scheme. Given the increasing restraints on the economy, stagnation for the months September-December now seems quite plausible. Of course, this scenario may prove to be too pessimistic, and the Markit surveys suggested continuing growth in September, albeit slower than in August. Alternatively, it may prove to be too optimistic if the renewed restrictions, along with the anticipated rising unemployment as the Coronavirus Job Retention Scheme comes to an end at end-October, push the economy back into contraction”.

For full story: 

Press enquiries:

Arbuthnot Banking Group PLC: 

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

Sam Cartwright 
020 7379 4415

Download full article

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Comment, at a glance

Markit/CIPS flash composite output index
sharp slowdown in October
23 October 2020

The Markit/CIPS flash UK Composite Output Index declined further in October, falling to 52.9, compared with September’s 56.5 (final), signalling continuing, but sharply slowing, growth.

The Markit/CIPS flash UK Services Business Activity Index fell to 52.3 in October, compared with September’s 56.1. Survey respondents overwhelmingly suggested that the latest setback for service sector output was due to a renewed downturn across the travel, leisure and hospitality industries amid tighter restrictions on trade and local lockdown measures. As a result, service providers reported a decline in new business for the first time since June.

The Manufacturing Output Index was a creditable 56.4 in October, after September’s 59.0. The wider manufacturing PMI slipped to 53.3, compared with September’s 54.1. The fall in the headline PMI reflected weaker rises in output and new orders, alongside a faster decline in staffing numbers across the manufacturing sector. Some firms commented on pent up demand and new enquiries from customers linked to the wider global economic recovery, whilst new export orders increased at the fastest pace since February 2018. Survey respondents noted rising demand from clients in China and the US, alongside a temporary boost from Brexit stock building among clients in Europe.

Chris Williamson, Markit’s Chief Business Economist, commented “...while Brexit preparations may cause a short-term boost to some parts of the economy ahead of 31st December, rising COVID-19 cases and the imposition of local lockdown measures bode ill for the near-term economic outlook. While the fourth quarter still looks likely to see the economy expand, the rate of growth looks to have slowed sharply and the risk of a renewed downturn has risen.”

Source: Markit/CIPS flash UK composite PMI, “Sharp slowdown in UK private sector output growth. New work declines for first time since June”, 23 October 2020. The Composite Output Index is a weighted average of the UK Manufacturing Output Index and the UK Services Business Activity Index, which are comparable indices. The manufacturing PMI is a weighted average of new orders, output, employment, suppliers’ delivery times, and stocks of purchases.

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Retail sales in September 5.5% higher than in February
23 October 2020

Retail sales volumes rose 1.5% (MOM) in September 2020, to be 5.5% higher than in February and 4.7% higher YOY.

While food sales have done well in recent months as people have eaten out less, non-food store sales have now made a recovery and were 1.7% above their February levels in September (though clothing sales volumes were still 12.7% below February’s). The ONS noted that home improvement sales continued to do well in September with increased sales in household goods and garden items within “other” non-food stores. Fuel sales volumes, however, were still 8.6% below February with reduced travel as many continued to work from home.

The proportion of online sales was at 27.5% in September, compared with 28.3% in August and May’s peak of 33.9%. But this was still well up on February’s 20.1%.

In the three months to September (2020Q3) sales rose 17.4% (QOQ), the biggest quarterly increase on record as sales picked up from record-low levels experienced earlier in the year. They were 3.0% higher (YOY).

Source: ONS, “Retail sales, September 2020”, 23 October 2020. 

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Public sector net borrowing £36.1bn in September, £208.5bn in 6 months to September
21 October 2020

The ONS estimated that public sector net borrowing (PSNB-ex, excluding public sector banks) in September 2020 was £36.1bn, compared with £7.7bn in September 2019. £36.1bn was the third highest borrowing in any month since current records began in January 1993.

The CGNB was £35.5bn in September 2020, compared with £7.8bn in September 2019 (table 2):
·       CG tax receipts were estimated to have been £37.7bn in September 2020 (on a national accounts basis), compared with £43.7bn in September 2019, with large falls in Value Added Tax (VAT), Business Rates and Corporation Tax receipts.
·       Total CG receipts were £52.5bn in September 2020, compared with £60.6bn a year earlier.
·       CG bodies were estimated to have spent £77.8bn on day-to-day activities (current expenditure) in September 2020, compared with £59.8bn a year earlier. This includes £4.9bn in Coronavirus Job Retention Scheme (CJRS) and £1.0bn in Self Employment Income Support Scheme (SEISS) payments.
·       CG net investment was £7.5bn in September 2020 and depreciation was £2.6bn.

The PSNB in the first six months of FY2020 (April-September 2020) was £208.5bn, compared with £34.0bn in the same period last year, the highest borrowing in any April-September period on record (records began in 1993), with each of the months from April to September being records. The ONS commented that the “…coronavirus pandemic has had an impact on public sector borrowing that is unprecedented in peacetime”.

Figures published in the OBR’s “Fiscal Sustainability Report and summer economic update monthly profiles” (published 21 August 2020) suggested that borrowing in FY2020 could reach £372.2bn, nearly seven times the amount borrowed in FY2019. The PSNB for FY2019 is now estimated to be £54.5bn.

Concerning two other key metrics:
·       Public Sector Net Debt (excluding public sector banks, PSND ex) at end-September 2020 was £2,059.7bn, compared with £1,785.7bn at the same point last year. The PSND/GDP ratio was 103.5%, the highest since FYE March 1960 (FY1959), compared with 80.5% at end-September 2019. The ONS has warned that their monthly GDP estimates for recent periods are based on official (OBR) projections and are subject to revision.
·       Note that the Bank of England’s (BoE’s) contribution to debt is largely a result of its quantitative easing activities via the Bank of England Asset Purchase Facility Fund (APF) and Term Funding Scheme (TFS).
·       The public sector debt interest to revenue ratio (DIR) in the rolling 12-months to September 2020 was 3.1% (table PSA4), compared with 3.6% a year earlier, and below the 6.0% level set by the government as a target.


Source: ONS, “Public sector finances: September 2020”, 21 October 2020.

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house prices 2.5% annual increase in August
21 October 2020
 According to official data, UK average house prices in August rose 2.5% (YOY), compared with 2.1% in July (revised, Figure 1). The ONS commented “…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 beginning of 2020 saw a pick-up in annual growth in the housing market before the coronavirus restrictions were put in place at the end of March 2020”. Prices rose by 0.7% (MOM) on a non-seasonally adjusted basis in August and increased by 0.5% (MOM) on a seasonally adjusted basis.

The inflation rates for the UK’s four countries in July were: England (2.8% YOY), Wales (2.7% YOY), Scotland (0.6% YOY) and Northern Ireland (3.0% (2020Q2, YOY)). In England, there was, as always, a significant range across the regions (figure 4). The complete list of annual price changes is: East Midlands (3.6%), North West (3.5%), London (3.5%), South East (2.9%), Yorkshire & Humberside (2.7%), South West (2.5%), West Midlands (2.3%), East (2.0%), and North East (0.2%).  

The ONS noted that changes to Stamp Duty Land Tax (SDLT), Land Transaction Tax and Land and Buildings Transaction Tax were made during July 2020. The UK House Price Index (HPI) is based on completed housing transactions. Typically, a house purchase can take six to eight weeks to reach completion. Therefore, the price data feeding into the August 2020 UK HPI would mainly reflect those agreements that occurred before the tax changes took place.

Source: ONS, “UK house prices index: August 2020”, 21 October 2020. 


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Producer prices inflation in September, -0.9% (output), -3.7% (input)
21 October 2020

The inflation rate for the output PPI (goods leaving the factory gate) was unchanged at -0.9% (YOY) in September (table 1). The ONS commented that “…petroleum products was the largest downward contributor to the annual rate of output inflation.”

The inflation rate for the input PPI (materials and fuels used in the manufacturing process) was -3.7% (YOY) in September, compared with -5.6% (YOY) in August (table 3). The largest downward contribution to the annual rate of input inflation was from crude oil. Crude oil prices fell 5.8% (MOM) in September, and were 34.1% lower YOY (table 5).

The annual rate of inflation for imported materials and fuels was -4.1% (YOY) in September compared with -6.0% (YOY) in August (table 4). Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight. Note that the sterling effective exchange rate index (ERI) depreciated 1.2% (MOM) in September, but was 0.9% higher YOY (table 4).

Source: ONS, “Producer price inflation, UK: September 2020, including services, July to September 2020”, 21 October 2020.


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CPI, CPIH inflation rates rise to 0.5% and 0.7% respectively in September
21 October 2020

The Consumer Prices Index (CPI) YOY rate rose to 0.5% in September, compared with August’s 0.2%, whilst the CPIH inflation rate rose to 0.7% (YOY) in September, compared with August’s 0.5% (YOY). CPIH is the Consumer Prices Index including owner-occupiers’ housing costs and is the ONS’s preferred measure of consumer prices inflation.

Transport costs (reflecting higher prices for second-hand cars), and restaurant and café prices, following the end of the Eat Out to Help Out scheme, made the largest upward contributions to the change in the CPIH YOY inflation rate between August and September 2020. But there were partially offsetting downward contributions from furniture, household equipment and maintenance; games, toys and hobbies; and food and non-alcoholic beverages.

The YOY inflation rates for goods and services in September were -0.3% (-0.2% in August) and 1.5% (1.0% in August) respectively (table 3). The core rate inflation (excluding energy, food, alcoholic beverages & tobacco) rose to 1.4% (1.0% in August).

Source: ONS, “Consumer price inflation, UK: September 2020”, 21 October 2020.


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Labour productivity (output per hour) fell 2.0% (QOQ) in 2020Q2
13 October 2020

The ONS has released its flash productivity estimates for 2020Q2 (labour productivity table 1):
·       Output per hour (the main measure of labour productivity, “productivity hours”) fell 2.0% (QOQ) in 2020Q2 to be 1.8% lower (YOY). Compared with the previous year, Gross value Added (GVA) fell by 21.5% and hours worked fell by 20%. 
·       Output per worker fell 19.0% (QOQ) in 2020Q2, the steepest fall on record, and was down 21.1% (YOY). The falls in output per worker were, therefore, far steeper than for output per hour because of the impact of the furlough scheme that retains employees as workers even though they work zero hours. Compared with the previous year, the total number of workers fell by just 0.4%, compared with the 21.5% fall in GVA.

Separately, the ONS had already released the unit labour costs (ULC) data (defined as the ratio of the total labour compensation per hour worked, to the output per hour worked) for 2020Q2. Whole economy ULC rose 21.3% (QOQ) in 2020Q2, to be 27.4% higher (YOY), easily the largest increase since records began. The QOQ increase was driven by the fall in GVA, whilst, during lockdown, government programmes for furloughed workers helped sustain labour costs despite the fall in production activities. 

Sources: (i) ONS, “Labour productivity headline measures, UK: 2020Q2”, 13 October 2020; (ii) ONS, “Productivity economic commentary, UK, 2020Q2”, 7 October 2020, for ULC data.  


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Some improvements in the labour market in September
13 October 2020

The ONS has released three key statistics relating to the labour market in September, which showed, overall, some modest improvements. The number of payroll employees rose marginally, whilst vacancies part recovered, but the claimant count rose further.

Firstly, early estimates from Pay As You Earn Real Time Information (PAYE RTI) indicate that the number of payroll employees rose marginally by 20k (0.1%, MOM) in September to 28.326mn. But they were still 673k fewer than in March 2020. The data are from HMRC.

Secondly, UK vacancies rose by 144k (QOQ, a record) in the three months to September, to 488k, but they were still 332k down YOY and remained well below the pre-coronavirus pandemic levels. The increase was driven by small businesses (49 or fewer employees).   

Thirdly, the Claimant Count rose by 27k (1.0%) in September (MOM) to 2.73mn. September’s figure was about 1.5mn (120.3%) higher than in March (1.24mn). The ONS noted that enhancements to Universal Credit (UC), as part of the UK government’s response to the coronavirus pandemic, meant that an increasing number of people became eligible for unemployment-related benefit support, although still employed. Consequently, changes in the Claimant Count would not be wholly due to changes in the number of people who were not in work. The ONS stated that they were “…not able to identify the extent to which people who were employed (or unemployed) had affected the numbers”. The data are from DWP.

Main source: ONS, “Labour market overview: October”, 13 October 2020.





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Real terms annual earnings growth remains negative in three months to August
13 October 2020

The rate of growth stood at 2.9% in December 2019 to February 2020 immediately prior to the coronavirus (COVID-19) pandemic, it then slowed sharply to negative 1.2% for total pay and negative 0.1% for regular pay before some increase in July and August.

In the three months to August:
·       In nominal terms, earnings growth was unchanged (YOY) for total pay (including bonuses) but was +0.8% for regular pay (excluding bonuses). The difference between the two measures reflected subdued bonuses, which fell by an average negative 15.3% (in nominal terms, YOY).
·       In real terms (inflation adjusted) growth was -1.2% (YOY) for total pay and -0.1% (YOY) for regular pay.

Between June to August 2019 and June to August 2020, average pay growth varied by industry sector. The public sector saw the highest estimated growth, at 4.1% for regular pay. Negative growth was seen in the construction sector, estimated at negative 5.3%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 1.8%, and the manufacturing sector, estimated at negative 0.9%. This is, however, an improvement over the growth rates during May to July 2020.

Main source: ONS, “Labour market overview: October”, 13 October 2020.



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The unemployment rate rises to 4.5% in the three months to August
13 October 2020

The Labour Force Survey (LFS) data, covering the period up to end of August 2020, continued to appear deceptively strong, as the furloughed workers scheme supported employment and restrained unemployment rises.

The ONS noted that estimates of the number of people in employment on the LFS were consistent with the International Labour Organization (ILO) definition of employment. Under this definition, employment included both those who were in work during the reference period and those who were temporarily away from a job. The number of people who were estimated to be temporarily away from work included furloughed workers, those on maternity or paternity leave and annual leave. Prior to the coronavirus (COVID-19) pandemic there was on average 2 to 2.5 million people temporarily away from work. The number of people temporarily away from work rose to almost 7.3 million people in April to June 2020 but had fallen to 6.4 million people in June to August 2020. There were also around 192,000 people away from work because of the pandemic and receiving no pay in June to August 2020, this had fallen from 419,000 in April to June 2020.

Concerning unemployment and redundancies in the three months to August:
·       Unemployment rose by 138,000 (QOQ) to 1.52mn and was 209,000 higher YOY. Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.
·       The unemployment rate (the proportion of the labour force that were unemployed) was 4.5%, 0.4 percentage points higher (QOQ) and 0.6 percentage points up (YOY). The unemployment rate can also be defined as the proportion of the economically active population (those in work plus those seeking and available to work) who are unemployed.
·       The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 20.8%, unchanged on the quarter and 0.2 percentage points lower YOY.
·       The number of redundancies increased by a record 114,000 (QOQ) to 227,000 and was 113,000 higher YOY. The annual increase was the largest since April to June 2009, with the number of redundancies reaching its highest level since May to July 2009.

Concerning employment (including the number of people temporarily away from work, including furloughed workers) in the three months to August:
·       Employment fell by 153,000 (QOQ) to 32.59mn and was 102,000 lower YOY.
·       The fall in employment was driven by workers aged 16-24 years (down 220,000 QOQ) and those aged 65 years and over (down 24,000 QOQ). In contrast, there was a combined increase of 92,000 (QOQ) for those aged 25-64 years.
·       The employment rate (the proportion of people aged 16-64 who were in work) was 75.6%, 0.3 percentage points lower (QOQ) and also 0.3 percentage points lower (YOY). 

Concerning hours worked in the three months to August:
·       Total actual weekly hours worked was 891.0mn, showing some recovery. This was 20.0mn hours higher (QOQ, a record) but still 158.2mn hours lower (YOY). The ONS noted the higher hours worked in the quarter reflected the easing of lockdown restrictions in June and July and changes to the furlough scheme.  
·       Average actual weekly hours were 27.3 hours, 0.7 hours higher (QOQ, a record), but still 4.8 hours down (YOY, table 7).

Sources: (i) ONS, “Labour market overview: October”, 13 October 2020; (ii) ONS, “Employment in the UK: October 2020”, 13 October 2020.

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