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

30th March 2020

Economic Insight - 30 March 2020

The coronavirus crisis: recession looks all but inevitable
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the coronavirus pandemic and its economic implications:
Press Release

The coronavirus crisis: recession looks all but inevitable

Date: 30th March 2020

The coronavirus crisis: recession looks all but inevitable
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the coronavirus pandemic and its economic implications:
    • The Government’s response to the increasingly severe coronavirus pandemic has been to introduce increasingly strict curbs on activity in order to contain the spread of the disease. These restrictions have already had, and will continue to have, profound implications for business and the economy.
    • It is currently impossible to say how long the current intensity of the restrictions will continue or, indeed, when the worst of the pandemic in the UK will be past. However, Sir Patrick Vallance (Government Chief Scientific Adviser (GCSA)) commented on 12 March that the peak could be “10-14 weeks ahead”, accompanied by a graph suggesting the worst of the outbreak would be over by Autumn 2020.
    • It will be some weeks before the ONS releases any indicators relating to March. But, in the meantime, Markit recently released its flash UK composite output index for March which showed a very sharp decline in activity – to a record low (the series began in 1998). The index implied contraction in 2020Q1. Moreover, Markit expect the decline to accelerate in 2020Q2.
    • Markit’s findings were broadly supported by the latest Bank of England Agents’ summary (for example), which concluded “…the Covid-19 (Coronavirus) pandemic has caused a sudden, rapid decline in economic activity in recent weeks”.
    • Given this information it now seems all but inevitable that the UK will experience a recession in the first half of 2020.
    • Given the enormous unknowns, a scenario-building approach to projecting GDP is probably the most constructive way forward. Assuming that the worst of the outbreak is over by the Autumn and that measures of the Government and the Bank of England are effective in mitigating the worst of the down-turn, it is reasonable to expect the beginnings of recovery in the second half of 2020 after a very sharp contraction in the first half of 2020. We also assume that there will be some significant relaxation of the severe restrictions introduced on 23 March 2020 in April-May. Overall GDP could fall 2?-3% in 2020.
    • This scenario is broadly in line with the MPC’s assessment that there will be a large and sharp reduction in activity, but it should prove temporary.
    Support measures by the Treasury and the Bank of England:
    • The Chancellor has announced four significant packages of measures: in the Budget (11 March, including the Coronavirus Business Interruption Loan Scheme), 17 March (including the Covid Corporate Financing Facility), 20 March (including the Coronavirus Job Retention Scheme) and 26 March (for the self-employed).
    • The Bank of England’s measures include: cuts in the Bank Rate (to 0.25% on 11 March and to 0.1% on 19 March), the introduction of the Term Funding scheme for SMEs and an increase in Bank’s holdings of UK government and corporate bonds by £200bn (to £645bn).
    Internationally:
    • In the US, the Fed cut the target range for Fed Funds again on 15 March (to 0-0.25%) and the Senate and the White House agreed a $2 trillion stimulus package on 25 March.
    • The ECB announced a new Pandemic Emergency Purchase Programme (PEPP), with overall envelope of €750bn, on 18 March.
    The pandemic has had major impact on the markets, including:
    • The equity markets, with the FTSE100 dropping from around 7,500 in the first half of February to a recent low of under 5,000 on 23 March, ending last week at around 5,500.
    • Sterling has weakened since the beginning of the year, reflecting the flight to relative safe havens (including the dollar) as well as the perceived, specific vulnerability of sterling, reflecting the UK’s need to finance its current account deficit.
    • Oil prices have collapsed from $65pb (Brent crude) at the start of the year to $25pb by 27 March, on falling demand, exacerbated by disagreements between Saudi Arabia and Russia.
    Other news:
    • The ONS’s recent releases have related to January and February and are, therefore, not good indicators of where the economy can be expected to go over the next few weeks and months. The labour market data were robust, whilst inflation looks well-contained.
    • The UK-EU Brexit talks are expected to continue in the forthcoming week, by video link.
    Ruth Lea said, “We are in unknown territory. The indicators we have, however, point to a fall in GDP in 2020Q1 and a very sharp contraction in 2020Q2. Recession, therefore, looks all but inevitable. If, however, the worst of the outbreak is indeed over by Autumn and the measures announced by the Treasury and the Bank of England mitigate the worst of the down-turn, the economy should start to recover in the second half of 2020. Under these circumstances, there would be a sharp V-shaped recession. Comparisons are being made with the Great Recession of 2008-2009 and it could well be, indeed it is likely, that the initial contraction in the economy is sharper that in 2008. But the Great Recession was characterised by a highly damaging, protracted U-shaped recession, which we do not expect this time”.

For full story: http://www.dannyshi.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
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the 11 March Budget:
    • There were two parts to the Budget. Firstly, a package of measures, costed at £12bn, to support public services (including the NHS), individuals and businesses affected by the coronavirus outbreak. Secondly, the new Government’s overall fiscal strategy, including the spending envelope for the forthcoming Comprehensive Spending Review 2020 (CSR).
    • The OBR’s revised economic forecasts were little changed. GDP growth was revised to 1.1% for 2020 (from 1.4% in March 2019, last year’s Spring Statement), 1.8% for 2021 (1.6%), 1.5% for 2022 (1.6%), 1.3% for 2023 (1.7%) and 1.4% for 2024 (new forecast). Significantly, these forecasts did not allow for the economic impact of the coronavirus outbreak.
    • The OBR revised their public finances forecasts. Public sector net borrowing (PSNB) and public sector net debt (PSND) were revised significantly higher, reflecting the substantial increase in public spending. Cumulative extra borrowing for the years FY2020-FY2023 (inclusive) was £95-100bn, whilst debt was projected to be £99bn higher in FY2023, and some 2.9% higher as a % of GDP, than in March 2019. These forecasts did not allow for the Treasury’s package of coronavirus-related measures.
    • The Budget was very expansionary. The estimated net effect of the spending and tax decisions totalled £17.9bn (FY2020), £36.4bn (FY2021), £38.5bn (FY2022), £41.15bn (FY2023) and £41.9bn (FY2024), entirely driven by higher spending (with current spending increases greater than capital spending increases). The net tax measures were contractionary.
    • Spending announcements included extra cash spending for the NHS, security and schools; around £640bn of gross capital investment for roads, railways, communications, schools, hospitals and power networks across the UK by FY2024; and plans to increase public R&D investment to £22bn a year by FY2024.
    • Tax announcements included confirmation of the scrapping of the planned reduction in Corporation Tax rate from 19% to 17%; freezing fuel and alcohol duties for FY2020; and increasing the NICs threshold to £9,500 in April 2020.
    Other UK news:
    • The Bank of England announced an emergency cut in Bank Rate to 0.25% on 11 March, alongside a new Term Funding scheme for SMEs and a relaxation of capital buffers.
    • GDP was flat (MOM) in January and flat (QOQ) in the three months to January.
    • The underlying total trade (goods and services, excluding precious metals) balance showed a deficit of just £0.5bn in the three months to January.
    The US Fed cut the target range for the Fed Funds rate to 0%-0.25% on 15 March, along with a major stimulus programme.

    EU update:
    • The ECB agreed a package of monetary policy measures to alleviate the impact of the coronavirus outbreak on 12 March, but no cuts in interest rates.
    • The Commission sent a draft legal text, titled the “New Partnership between the European Union and the United Kingdom”, to the 27 EU states on 12 March.
    Ruth Lea said, “The coronavirus measures are to be welcomed. Concerning the rest of the Budget, it was more expansionary than expected, with large projected increases in current as well as capital spending. The OBR forecast significant rises in public sector borrowing and debt compared with March 2019. But, given the huge uncertainties ahead, there are serious risks that these forecasts could be significantly overshot. There is already speculation that the Autumn Statement may need to contain tax rises, though, at this point, it is too early to comment on this issue with any confidence.”

For full story: http://www.dannyshi.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
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the 11 March Budget:
    • There were two parts to the Budget. Firstly, a package of measures, costed at £12bn, to support public services (including the NHS), individuals and businesses affected by the coronavirus outbreak. Secondly, the new Government’s overall fiscal strategy, including the spending envelope for the forthcoming Comprehensive Spending Review 2020 (CSR).
    • The OBR’s revised economic forecasts were little changed. GDP growth was revised to 1.1% for 2020 (from 1.4% in March 2019, last year’s Spring Statement), 1.8% for 2021 (1.6%), 1.5% for 2022 (1.6%), 1.3% for 2023 (1.7%) and 1.4% for 2024 (new forecast). Significantly, these forecasts did not allow for the economic impact of the coronavirus outbreak.
    • The OBR revised their public finances forecasts. Public sector net borrowing (PSNB) and public sector net debt (PSND) were revised significantly higher, reflecting the substantial increase in public spending. Cumulative extra borrowing for the years FY2020-FY2023 (inclusive) was £95-100bn, whilst debt was projected to be £99bn higher in FY2023, and some 2.9% higher as a % of GDP, than in March 2019. These forecasts did not allow for the Treasury’s package of coronavirus-related measures.
    • The Budget was very expansionary. The estimated net effect of the spending and tax decisions totalled £17.9bn (FY2020), £36.4bn (FY2021), £38.5bn (FY2022), £41.15bn (FY2023) and £41.9bn (FY2024), entirely driven by higher spending (with current spending increases greater than capital spending increases). The net tax measures were contractionary.
    • Spending announcements included extra cash spending for the NHS, security and schools; around £640bn of gross capital investment for roads, railways, communications, schools, hospitals and power networks across the UK by FY2024; and plans to increase public R&D investment to £22bn a year by FY2024.
    • Tax announcements included confirmation of the scrapping of the planned reduction in Corporation Tax rate from 19% to 17%; freezing fuel and alcohol duties for FY2020; and increasing the NICs threshold to £9,500 in April 2020.
    Other UK news:
    • The Bank of England announced an emergency cut in Bank Rate to 0.25% on 11 March, alongside a new Term Funding scheme for SMEs and a relaxation of capital buffers.
    • GDP was flat (MOM) in January and flat (QOQ) in the three months to January.
    • The underlying total trade (goods and services, excluding precious metals) balance showed a deficit of just £0.5bn in the three months to January.
    The US Fed cut the target range for the Fed Funds rate to 0%-0.25% on 15 March, along with a major stimulus programme.

    EU update:
    • The ECB agreed a package of monetary policy measures to alleviate the impact of the coronavirus outbreak on 12 March, but no cuts in interest rates.
    • The Commission sent a draft legal text, titled the “New Partnership between the European Union and the United Kingdom”, to the 27 EU states on 12 March.
    Ruth Lea said, “The coronavirus measures are to be welcomed. Concerning the rest of the Budget, it was more expansionary than expected, with large projected increases in current as well as capital spending. The OBR forecast significant rises in public sector borrowing and debt compared with March 2019. But, given the huge uncertainties ahead, there are serious risks that these forecasts could be significantly overshot. There is already speculation that the Autumn Statement may need to contain tax rises, though, at this point, it is too early to comment on this issue with any confidence.”

For full story: http://www.dannyshi.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

16th March 2020

Economic Insight - 16 March 2020

The March Budget: coronavirus-related support and major increases in public spending
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the 11 March Budget:
Press Release

The March Budget: coronavirus-related support and major increases in public spending

Date: 16th March 2020

The March Budget: coronavirus-related support and major increases in public spending
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the 11 March Budget:
    • There were two parts to the Budget. Firstly, a package of measures, costed at £12bn, to support public services (including the NHS), individuals and businesses affected by the coronavirus outbreak. Secondly, the new Government’s overall fiscal strategy, including the spending envelope for the forthcoming Comprehensive Spending Review 2020 (CSR).
    • The OBR’s revised economic forecasts were little changed. GDP growth was revised to 1.1% for 2020 (from 1.4% in March 2019, last year’s Spring Statement), 1.8% for 2021 (1.6%), 1.5% for 2022 (1.6%), 1.3% for 2023 (1.7%) and 1.4% for 2024 (new forecast). Significantly, these forecasts did not allow for the economic impact of the coronavirus outbreak.
    • The OBR revised their public finances forecasts. Public sector net borrowing (PSNB) and public sector net debt (PSND) were revised significantly higher, reflecting the substantial increase in public spending. Cumulative extra borrowing for the years FY2020-FY2023 (inclusive) was £95-100bn, whilst debt was projected to be £99bn higher in FY2023, and some 2.9% higher as a % of GDP, than in March 2019. These forecasts did not allow for the Treasury’s package of coronavirus-related measures.
    • The Budget was very expansionary. The estimated net effect of the spending and tax decisions totalled £17.9bn (FY2020), £36.4bn (FY2021), £38.5bn (FY2022), £41.15bn (FY2023) and £41.9bn (FY2024), entirely driven by higher spending (with current spending increases greater than capital spending increases). The net tax measures were contractionary.
    • Spending announcements included extra cash spending for the NHS, security and schools; around £640bn of gross capital investment for roads, railways, communications, schools, hospitals and power networks across the UK by FY2024; and plans to increase public R&D investment to £22bn a year by FY2024.
    • Tax announcements included confirmation of the scrapping of the planned reduction in Corporation Tax rate from 19% to 17%; freezing fuel and alcohol duties for FY2020; and increasing the NICs threshold to £9,500 in April 2020.
    Other UK news:
    • The Bank of England announced an emergency cut in Bank Rate to 0.25% on 11 March, alongside a new Term Funding scheme for SMEs and a relaxation of capital buffers.
    • GDP was flat (MOM) in January and flat (QOQ) in the three months to January.
    • The underlying total trade (goods and services, excluding precious metals) balance showed a deficit of just £0.5bn in the three months to January.
    The US Fed cut the target range for the Fed Funds rate to 0%-0.25% on 15 March, along with a major stimulus programme.

    EU update:
    • The ECB agreed a package of monetary policy measures to alleviate the impact of the coronavirus outbreak on 12 March, but no cuts in interest rates.
    • The Commission sent a draft legal text, titled the “New Partnership between the European Union and the United Kingdom”, to the 27 EU states on 12 March.
    Ruth Lea said, “The coronavirus measures are to be welcomed. Concerning the rest of the Budget, it was more expansionary than expected, with large projected increases in current as well as capital spending. The OBR forecast significant rises in public sector borrowing and debt compared with March 2019. But, given the huge uncertainties ahead, there are serious risks that these forecasts could be significantly overshot. There is already speculation that the Autumn Statement may need to contain tax rises, though, at this point, it is too early to comment on this issue with any confidence.”

For full story: http://www.dannyshi.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

1234 (2019)(2018)

Comment, at a glance

ONS publication on indicators relating to coronavirus
9 April 2020

The ONS currently compiles a release on indicators on the UK economy and society, including information related to the coronavirus (COVID-19). The release covers the ONS’s Business Impact of Coronavirus (COVID-19) Survey (BICS), price indices for several high-demand products (HDPs), weekly shipping data for the UK and the ONS’s new Opinions and Lifestyle (OPN) Survey.

Firstly, concerning the BICS, which related to the period 9-22 March, prior to the introduction of the Government’s “Stay At Home measures” (23 March). Around 4,600 businesses responded:
·       Turnover: 47% of businesses reported that their turnover was lower than normal for this period. For accommodation and food service activities (regardless of employment size) over 90% of responding businesses reported that turnover was lower than normal.
·       Workforce: 29% reported having to reduce staff numbers in the short-term. The accommodation and food services sector, the administrative and support services sector and the arts, entertainment and recreation sector reported the largest proportions of reducing staff numbers in the short-term.
·       Business confidence: 40% of business respondents reported they were confident they could continue operating during the COVID-19 pandemic, while 15% said they were not confident and 44% said they did not know. The main sectors, from those sampled, to report that they were not confident that they would be able to continue operating were from businesses within the accommodation and food service sectors and the arts, entertainment and recreation sector.

Secondly, experimental weekly online price indices were presented for several high-demand products (HDPs), for the period 16 March to 5 April. Overall, online prices of items in the HDP basket had increased by 1.5%. For long-life food, and household and hygiene items, prices had remained fairly stable, with overall price increases of 0.8% and 0.7% respectively.

Thirdly, in the week commencing 23 March, the number of unique visits by ships to UK ports fell by 7.3%, whilst total visits to UK ports decreased by 12.4% in the same period. The ONS said they expected that the shipping indicators would be related to the import and export of goods.

Finally, concerning the OPN, which related to the period 20-30 March:
·       Over 8 in 10 people (85.7%) said they were either very worried or somewhat worried that they or someone in their family would be infected by the coronavirus (COVID-19).
·       Nearly all adults in the OPN had either cancelled or postponed plans (89.2%) because of the coronavirus, or did not have plans in the previous seven days.

Source: ONS, “Coronavirus, the UK economy and society, faster indicators: data as at 9 April 2020”, 9 April 2020.

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Trade (goods & services) surplus of £5.9bn in 3 months to February
9 April 2020

The total trade (goods & services) surplus was £5.9bn in the three months to February, compared with a deficit of £1.1bn in the previous three months, an improvement of £7.0bn, as exports slipped by 0.9% (YOY) whilst imports fell by 4.7% (table 1). Within the total:
·       The visible (goods) deficit narrowed to £18.7bn, compared with a deficit of £25.5bn in the previous three months. Exports slipped by 0.8% whilst imports fell by 6.2%.
·       Within the goods total, the deficit with the EU narrowed to £17.6bn (from £24.4bn), whilst the deficit with non-EU countries was £1.1bn, little changed from the previous three months (£1.2bn). Most of the improvement in the EU balance reflected lower imports from the EU.
·       The services surplus was little changed at £24.6bn (compared with £24.4bn in the previous three months), as exports slipped by 1.0%, whilst imports eased by 1.6%.

The ONS pointed out that the data were distorted by movements in precious metals (including non-monetary gold (NMG)) and they publish an “underlying” series, excluding precious metals:
·       There was an “underlying” total trade surplus of 1.4bn in the three months to February, compared with a deficit of £5.2bn with the previous three months, an improvement of £6.6bn. the ONS said that this is the first underlying three-month total trade surplus since comparable records began.
·       Within the total, the goods deficit narrowed to £23.2bn, compared with £29.6bn in the previous three months. The narrowing was caused by falling imports of machinery and transport equipment, chemicals, and miscellaneous manufactures.
·       EU countries led the narrowing of the trade in goods deficit in the three months to February 2020, narrowing by £6.1bn to £18.4bn.

Removing the effect of inflation, the total trade balance in volume terms, excluding unspecified goods (which includes NMG), improved by £5.4bn to a surplus of £1.0bn in the three months to February 2020.

Read more
GDP slipped 0.1% in February, grew 0.1% in 3 months to February
9 April 2020
GDP slipped 0.1% (MOM) in February, following a flat figure in January. It was just 0.3% (YOY) higher (table GVA3). Within GDP, services were flat, production rose a tad, but construction fell:
·       The services sector was flat (MOM), following growth of 0.1% (MOM) in January. Positive contributions from computer programming and accounting were offset by falls in both wholesale and warehousing.
·       Production grew by 0.1% (MOM). Within production, manufacturing grew by 0.5% (MOM). The largest cause of this increase was the often-volatile pharmaceutical sub-industry, which increased by 3.5%.
·       Construction fell by 1.7% (MOM). The largest contributor to this monthly fall was private new housing, which fell by 7.7%. The monthly fall in construction is likely to have been in part impacted by the adverse weather seen throughout February.

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 was grew just 0.1% (QOQ) in the three months to February, compared with being flat (QOQ) in the three months to January, to be 0.7% (YOY) higher (table GVA1). Within GDP, services was grew, but production and construction both fell:
·       Services growth was 0.2% (QOQ), following zero growth in the three months to January 2020. Several sub-industries contributed to this growth, the largest of which was education. Public sector-dominated industries such as education have shown strong growth over the last year, performing better than private sector-dominated services as a whole.
·       Output in the production sector fell by 0.6% (QOQ, with manufacturing falling by 0.4% (QOQ). There were widespread falls across manufacturing industries. The most notable were within the manufacture of transport equipment, which fell by 1.9% partly because of weaker exports to China impacted by the COVID-19 pandemic; and machinery and equipment not elsewhere classified, which fell by 3.4%. Elsewhere, energy production along with mining and quarrying fell, while water supply increased.
·       Construction output fell by 0.2% (QOQ), following downwardly revised growth of 1.0% (QOQ) for the three months to January. This fall was caused by private housing repair and maintenance, which fell by 5.6%.

 

Read more
Halifax
House prices were stable in March
7 April 2020

According to the Halifax, house prices in March were flat (QOQ), but were 3.0% higher than in the same month a year earlier (YOY). Halifax noted that activity in much of March was positive, underlining “a positive trajectory and increased momentum in the early part of the year, with confidence rising as political and economic uncertainty eased”.

However, they also noted that these more positive developments were, on the whole, recorded prior to the house-moving restrictions initially introduced by the Government on 23 March (updated on 26 March) in response to the COVID-19 pandemic. The Government advised “house moves should be delayed unless moving is unavoidable”.    

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Labour productivity (output per hour) grew 0.3% (QOQ) in 2019Q4
7 April 2020

The ONS reported that output per hour (the main measure of labour productivity, “productivity hours”) grew 0.3% (QOQ) in 2019Q4, to be 0.3% higher (YOY) (labour productivity table 1). The 0.3% YOY increase was a result of gross value added (GVA) growing faster than hours worked, at 1.1% and 0.8% respectively. (GVA is a measure of the production of goods and services in the economy and is closely aligned to gross domestic product (GDP).) The 0.3% growth in output per hour largely reflected a strong performance from construction, while manufacturing made the largest negative contribution to whole-economy productivity growth.

Output per worker fell 0.5% (QOQ) in 2019Q4, but was unchanged (YOY), as GVA and total employment grew at a similar pace (YOY).

In 2019, there was no growth in output per hour compared with the previous year. Over the same period, output per worker grew marginally by 0.3%.

Unit labour costs (ULCs) rose by 2.3% (YOY) in 2019Q4, as labour costs (such as wages and salaries) growth (at 2.6%) outpaced the growth in labour productivity (output per hour, at 0.3%). As explained by the ONS “…holding other factors constant, increasing output per hour reduces ULCs and vice versa. Positive output per hour growth has a negative effect on ULC growth, while negative output per growth has a positive effect on ULC growth”. Unit labour costs are a leading indicator of inflation. Overall, in 2019 ULCs grew by 3.0% compared with 2018.

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Markit construction survey shows large fall in activity in March
6 April 2020
The Markit/CIPS construction Total Activity Index dropped to 39.3 in March from 52.6 in February, to signal the steepest fall in construction output since April 2009. Survey respondents overwhelmingly attributed reduced activity to the impact of the COVID-19 pandemic. Emergency public health measures to halt the spread of COVID-19 had led to stoppages of work on site and a slump in new orders.

All three broad categories of construction work recorded a fall in output during March. Civil engineering activity (index at 34.4) saw the steepest rate of decline, followed closely by commercial building work (index at 35.7). Residential activity dropped at a comparatively modest pace in March, with the equivalent index posting 46.6. However, construction companies often commented on an expected slump in house building from stoppages on site amid increasing measures to slow the spread of COVID-19.

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Markit survey shows record fall in services in March
3 April 2020

The Markit/CIPS final UK Services PMI Business Activity Index posted 34.5 in March, below the earlier ‘flash’ reading of 35.7 and down sharply from 53.2 in February. This reading exceeded the previous record low seen at the height of the global financial crisis and signalled by far the fastest downturn in service sector output since the survey began in July 1996. The slump in activity was almost exclusively linked by survey respondents to business shutdowns and cancelled orders in response to the COVID-19 pandemic. The latest survey data were collected 12-27 March.

Markit’s Composite Output Index, a weighted average of the Manufacturing Output Index and the Services Business Activity Index, was 36.0 in March, down sharply from 53.0 in February and the lowest level since this series began in January 1998. The latest reading was below the earlier ‘flash’ reading of 37.1 in March and pointed to a slightly faster reduction in private sector output than that seen at the height of the global financial crisis (index at 38.1 in November 2008).The downturn in overall business activity was driven by a rapid fall in service sector activity (see above), alongside the fastest decline in manufacturing production since July 2012.

Markit noted that the UK economy was “…now almost certain to experience a deep contraction in 2020Q2”.

Read more
New ONS publication on indicators relating to coronavirus
2 April 2020

The ONS has started to compile a release on indicators on the UK economy and society, including information related to the coronavirus (COVID-19). The ONS said the indicators were constructed from rapid response surveys, novel data sources and experimental methods. The publication contained two new indicators: one on business impacts and one on online price changes for high-demand products.

Firstly, the initial results from the new fortnightly Business impact of coronavirus (COVID-19) survey (BICS), for the period 9 March to 22 March 2020, covered business turnover, workforce, producer prices and trade. The main findings were:
·       Of those 3,642 businesses who responded to the BICS, 45% reported turnover that was “lower than expected”.
·       Over a quarter (27%) of responding businesses said they were reducing staff levels in the short term, while 5% reported recruiting staff in the short term.
·       Almost half (46%) of businesses who responded said that they had encouraged their staff had to work from home.
·       The majority of responding businesses reported that the prices they buy and sell at were stable, with 68% of businesses who responded reporting no change to their selling prices and 63% reporting that the costs of buying goods and services generally stayed the same.
·       For those businesses that responded where importing and exporting were applicable, 57% of importers and 59% of exporters reported that trade had been affected by COVID-19.

Secondly, experimental weekly online price indices were presented for several high-demand products (HDPs), for the period 16 March to 29 March 2020, covering items such as long-life food, health and household and hygiene products. The main findings were:
·       Overall, online prices of items in the high-demand products (HDPs) basket have increased by 1.1% over the period week 1 (16 to 22 March) to week 2 (23 to 29 March).
·       Over the same period, most items in the basket saw modest price changes, with 13 out of the 22 items showing price changes between negative 1.0% and positive 1.0%. 

In addition, the publication included the shipping indicators based on counts of all vessels, cargo ships and tankers to the week commencing 16 March 2020 for weekly data and to the 28 March 2020 for the ONS’s daily ships visits data. The ONS concluded that in the week commencing 16 March 2020, both unique shipping visits and total shipping visits increased on a UK level, but some large UK ports saw decreases in unique visits in this period.

Source: ONS, “Coronavirus, the UK economy and society, faster indicators: data as at 2 April 2020”, 2 April 2020.

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Markit survey for UK manufacturing, significant fall in March
1 April 2020

Markit reported today that the outbreak of coronavirus disease 2019 (COVID-19) and subsequent mitigation efforts across the world had led to a substantial contraction of UK manufacturing production during March. The seasonally adjusted IHS Markit/CIPS PMI fell to a three-month low of 47.8 in March, down from 51.7 in February.

Specifically, Markit commented:
·       Output fell at the greatest extent since July 2012 following a similarly severe reduction in intakes of new business. The downturns in output and new orders were widespread, with contractions seen across the consumer, intermediate and investment goods sub-industries.
·       Employment fell for the eleventh time in the past 12 months, and at the fastest rate since July 2009.
·       Restrictions in place around the world in response to the COVID-19 pandemic had a noticeable impact on supply chains during March. Vendor delivery times lengthened to the greatest extent in the 28-year survey history amid reports of input shortages, transport disruption and delays in receiving goods from overseas. International shipping and border delays were also mentioned.

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Current account deficit narrowed in 2019Q4, little changed in 2019
31 March 2020

The current account deficit narrowed significantly to £5.6bn (1.0% of GDP) in 2019Q4, compared with £19.9bn (3.6%% of GDP) in 2019Q3, an improvement of £14.3bn. The deficit in 2019Q4 was the lowest since 2011Q2 when it was £2.3bn (0.6% of GDP). The narrowing in the current account deficit was primarily because of a substantial narrowing in the goods deficit, which was distorted by movements in precious metals (including non-monetary gold (NMG)). The ONS noted that the total trade balance had been more volatile over the course of 2019 than usual. In 2019Q1, the UK recorded substantial imports of non-monetary gold leading to a sharp deterioration in the balance. However, in 2019$, the UK recorded the unwinding of these imports leading to a positive impact on the trade and current account balances.

More specifically in 2019Q4:
·       The goods deficit narrowed to £15.6bn (from £29.9bn in 2019Q3), as exports rose by 9.2% (QOQ), whilst imports rose just 0.6% (QOQ). The narrowing mainly reflected higher exports of precious metals (including non-monetary gold (NMG)).
·       The services surplus slipped to £23.5bn (from £26.7bn in 2019Q3). The surplus on “other business services” fell by £4.5bn to £4.2bn.
·       Taking goods and services together, there was a total trade surplus of £8.0bn, compared with a deficit of £3.2bn in 2019Q3.
·       The primary income (mainly investment income) deficit improved to £7.1bn in 2019Q4 (compared with £9.7bn in 2019Q3). The ONS said the main factor in the narrowing of the primary income deficit was a widening to the surplus on foreign direct investment (FDI). This was mainly because of the value of FDI credits, which increased by £2.5bn to £25.2bn in 2019Q4. Meanwhile, FDI debits only increased £0.2bn to £17.6bn.
·       The secondary account (current transfers) deficit was little changed at £6.4bn (£7.0bn in 2019Q3).

The current account deficit with the EU was little changed at £27.6bn in 2019Q4 (£27.0bn in 2019Q3), whilst the non-EU surplus rose to £22.1bn (£7.1bn in 2019Q3). The overall improvement in the current account, therefore, mainly reflected trade with non-EU countries.


Turning to the annual data, the current account deficit was little changed, recording a deficit of £83.8bn (3.8% of GDP) in 2019, compared with a deficit of £82.9bn (3.9% of GDP) in 2018. On an annual basis, the intra-2019 volatility in the trade of non-monetary gold and other precious metals was not evident, according to the OBS.

More specifically in 2019:
·       The goods deficit narrowed to £129.7bn (from £139.4bn in 2018).
·       The services surplus slipped to £103.8bn (from £109.6bn in 2018).
·       Taking goods and services together, there was a total trade deficit of £25.9bn, compared with a deficit of £29.8bn in 2018, a modest improvement.
·       The primary income (mainly investment income) deficit rose to £30.3bn in 2019 (compared with £27.5bn in 2018). An increase in the surplus on FDI was largely offset by a deterioration in the balance (deficit) on portfolio investment.
·       The secondary account (current transfers) deficit was little changed at £27.5bn (£25.6bn in 2018).

The current account deficit with the EU was little changed at £109.9bn in 2019 (£109.6bn in 2020), whilst the non-EU surplus was also little changed at £26.1bn (£26.8bn in 2018).

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