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

27th July 2020

Economic Insight - 27 July 2020

The coronavirus crisis: recovering retail sales and rocketing public sector borrowing
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments: Download full article

20th July 2020

Economic Insight - 20 July 2020

Next steps in Government’s recovery strategy, disappointing GDP data and OBR expects £370bn borrowing this year
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:
Press Release

Next steps in Government’s recovery strategy, disappointing GDP data and OBR expects £370bn borrowing this year

Date: 20th July 2020

Next steps in Government’s recovery strategy, disappointing GDP data and OBR expects £370bn borrowing this year
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:
    • The Prime Minister announced the next chapter of the Government’s COVID-19 recovery strategy on 17 July.
    • From 1 August, the Government will give employers more discretion on how they ensure employees can work safely, reopen most remaining leisure settings, enable the restart of indoor performances, enable all close contact services to return, and carry out pilots in venues with a range of sizes of crowds.
    Concerning recent UK economic news:
    • GDP rose a disappointing 1.8% (MOM) in May, following falls of 20.3% in April and 6.9% in March. May’s GDP level was some 24.5% lower than in February 2020.
    • The rise in services output (0.9%) in May was especially weak. Production rose 6.0%, whilst construction recovered by 8.2%.
    • LFS data showed the unemployment rate was unchanged in the three months to May at 3.9%, but the figure was distorted by the increase in discouraged workers and people on furlough, many of whom are expected to lose their jobs. Employment fell 126,000 (QOQ) in the three months to May, reflecting a very sharp decline in the self-employed.
    • Average actual weekly hours worked slumped by an annual 5.5 hours to a record low of 26.6 hours in the three months to May.
    • Annual pay growth declined sharply in the three months to May. In real terms, total pay fell 1.3% (YOY), whilst regular pay fell 0.2% (YOY).
    • HMRC data showed the number of payroll employees fell by a further 74,000 (MOM) in June.
    • There were 333,000 vacancies in the three months to June 2020 (2020Q2), a record low. They were 463,000 down on the previous quarter and 497,000 down on a year earlier.
    • The Claimant Count, however, slipped slightly in June to 2.63mn, but was still well up on March’s 1.24mn.
    • CPI inflation firmed a tad in June to 0.6%, compared with May’s 0.5%.
    • Concerning producer prices, output prices inflation was -0.8% (YOY) in June, compared with -1.2% (YOY) in May, reflecting higher prices for petroleum products. Input prices inflation was -6.4% (YOY) in June, compared with May’s -9.4%, reflecting a part recovery in crude oil prices. Crude oil prices rose 31.0% (MOM) in June.
    The OBR’s latest Fiscal sustainability report was released on 14 July. The main points were:
    • The OBR constructed three scenarios.
    • In the central scenario, GDP falls by 12.4% in 2020, whilst unemployment rises to 8.8% (3 million) in 2020 and to 10.1% (about 3½ million) in 2021.
    • In the upside scenario, GDP falls by 10.6% in 2020 and unemployment averages 7.9% (2¾ million) in 2020, falling in 2021.
    • In the downside scenario, GDP falls by 14.3% in 2020, whilst unemployment rises to 9.1% (over 3 million) in 2020 and to 11.6% (4 million) in 2021.
    • In the central scenario, public sector net borrowing (PSNB) rise to £322bn (16.4% of GDP) in FY2020, excluding the Chancellor’s latest measures (8 July). Adding in the estimated £50bn for these measures, gives a grand total of £372bn (around 19% of GDP). Debt rises to over 100% of GDP in FY2020.
    • The PSNB in FY2020 would be £263bn (13% of GDP) for the upside scenario and £391bn (21% of GDP) for the downside scenario. These estimates also excluded the costs of the 8 July measures.
    • The £322bn projection the PSNB in FY2020 (central scenario, excluding 8 July measures) exceeded the forecast for the March Budget (around £55bn) by £267bn. Of the £267bn, £125bn was attributable to underlying, forecasting differences and £142bn to the effects of Government decisions. Including the £50bn of measures announced on 8 July, the effects of Government decisions rises to around £190bn.
    • The OBR’s long-term fiscal projections go up to FY2069. The OBR concluded that the “explosive” increases in the debt/GDP ratios under their central and downside scenarios were not sustainable. They acknowledged that borrowing costs were low and the Government was currently having no difficulties in financing the debt. But, they noted, that borrowing costs “could rise” and a prudent government should seek to restrain borrowing by raising taxes and/or cutting spending in order to put the public finances on a sustainable footing. Moreover, raising deficits in “good times”, encouraged by low borrowing costs, ran counter to the need to “build up fiscal space” to cope with “bad times”.
    Ruth Lea said, “The next steps in lifting restrictions are welcome, but the retention of the social distancing rules for the time being will remain problematic for the “face-to-face” sectors of the economy. Reflecting earlier relaxations, there are signs that the economy is recovering after the economic shock of lockdown in March, but May’s disappointing pick-up in GDP serves to remind us that the recovery could be protracted and painful. There is little doubt the labour market is deteriorating despite the furlough scheme and it is not unreasonable to expect the unemployment rate to rise to 10% by the end of this year. Meanwhile, the OBR’s latest analysis reminds us of the monumental deterioration in the public finances.”

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
Jais Mehaji
020 7379 5151
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Comment, at a glance

Consumer credit broadly stable in June, some recovery in mortgage approvals
29 July 2020

Concerning lending to individuals the Bank of England announced: 
·       Total consumer credit levels were broadly stable in June. Households repaid just £0.1bn of consumer credit (net) in June, following payments of £4.5bn in May, £7.3bn in April and £3.7bn in March. (Money and credit statistical release, table B). The growth rate fell to negative 3.6% (YOY), the weakest since the series began in 1994, compared with May’s negative 3.0%. There was a repayment of credit card debt (£0.25bn) but other borrowing rose about £0.15bn.
·       There was some partial recovery in the number of mortgage approvals for house purchase in June (table E). The number rose to 40,000 in June, after May’s record low of 9,300. Nevertheless, this was still well below the pre-COVID-19 February level (73,700). Average approvals in the previous 6 months were 49,100. Approvals for re-mortgage were 36,900 in June, after May’s 30,700, but were 30% lower than in February.
·       Net mortgage borrowing by households increased by £1.9bn in June, after £1.3bn in May and a flat figure in April. The annual growth rate for mortgage borrowing slipped to 3.0% (3.1% in May) (table D). Mortgage borrowing tends to lag approvals.

Concerning bank lending to non-financial businesses, which includes lending to businesses in the public sector (table G):
·       Loans (net) to SMEs increased a further £10.2bn in June, whilst the growth rate increased to 17.4%, after 11.8% (YOY) in May and 1.2% in April. The Bank noted that “…this strength is likely to reflect businesses drawing down loans arranged through government-supported schemes such as the Bounce Back Loan Scheme”.
·       Loans (net) to large businesses, in contrast, fell a record £16。7bn in June, following a £13。0bn net repayment in May。 The Bank commented “…as was the case in May, around half of the net repayment in June was from the public administration and defence industry。 Abstracting from this industry, overall repayments were still large, broadly offsetting borrowing by SMEs。 There were large repayments from the real estate and manufacturing industries in particular”。 The YOY growth rate was 4。9% in June, after May’s 10。9%。

Businesses can also raise funds from financial markets via instruments such as bonds and commercial paper, or with equity. In June, firms raised £10.6bn from financial markets. The increase in June was driven by net issuance of bonds, which increased £7.0bn and equity, which increased £3.8bn.

Broad money (M4ex, excluding intermediate other financial corporations (IOFCs)) rose by £16.0bn in June, as private sector companies and households continued increasing their deposit balances with banks at a historically fast pace, albeit more slowly than the previous few months. The YOY growth rate was 11.9% in June, after May’s 11.3% (table J).


Source: Bank of England, “Money and credit: June 2020”, 29 July 2020.


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Markit/CIPS flash composite index
further marked improvement in July
24 July 2020

The Markit/CIPS flash UK composite output index showed a further marked improvement in July, rising to 57.1, compared with June’s 47.7 (final). The July data indicated better business conditions across the UK private sector economy following the easing of lockdown measures。 The latest survey indicated a return to growth for the service sector and a much faster rise in manufacturing production than seen in June.

The Markit/CIPS flash UK services PMI recovered to 56.6 in July, compared with June’s 47.1. Survey respondents mainly linked the rise in business activity to the reopening of their own sites and those of their customers. Despite the restart of more parts of the service economy, especially leisure-related businesses, there were also reports that initial levels of demand had been weaker-than-expected. Concerns about the speed of recovery, as well as a strong upturn in non-staff costs, acted as a brake on employment numbers in July。

The manufacturing output index was 59.8 in July, compared with June’s 50.7. July data indicated that manufacturing output expanded at the fastest pace since November 2017, which was primarily attributed to a sustained recovery in production capacity after the stoppages seen during the spring.

Markit commented “…the UK economy started the third quarter on a strong footing as business continued to reopen doors after the COVID-19 lockdown. The surge in business activity in July will fuel expectations that the economy will return to growth in 2020Q3 after having suffered the sharpest contraction in modern history during 2020Q2”。

Source: Markit/CIPS flash UK composite PMI, “UK private sector output growth hits 5-year high as reopening gathers momentum in July”, 24 July 2020. The Composite Output Index is a weighted average of the UK Manufacturing Output Index and the UK Services Business Activity Index (PMI).

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Retail sales in June almost back to February level
24 July 2020

Retail sales volumes further recovered in June 2020 with an increase of 13.9% (MOM), following May’s increase of 12.3% (MOM) and falls in March and April. Compared with February sales in June were just 0.6% lower. Sales in June 2020 were only 1.6% lower YOY.

There was, however, a mixed picture on different store types. In June, while non-food stores and fuel sales showed strong monthly growths in the volume of sales at 45.5% and 21.5% respectively, levels had still not recovered from the sharp falls experienced in March and April. In contrast, food stores and non-store retailing both reached new high levels since the start of the pandemic, with volume food sales 5.3% higher, and non-store retailing 53.6% higher, than February.

The proportion spent online eased to 31.8% in June, after May’s record 33.3%, but was still significantly higher than February’s 20.0%. While all sectors showed a recent uptake in money spent online, non-store retailing has dominated spending, with more spent with businesses that predominantly only trade online. Nevertheless, non-food stores had seen continued strong growth in online spending since the beginning of 2020. Feedback from retailers had suggested that lockdown measures had encouraged them to diversify and trade online during lockdown. Food stores had the least amount of online spending throughout, when compared with other main stores, but saw a sharp increase in March 2020 following a continued stable period.

In the three months to June (2020Q2), sales decreased by 9.5% (QOQ), with declines across all stores except food stores and non-store retailing. They were down 11.6% (YOY).

Source: ONS, “Retail sales, June 2020”, 24 July 2020. 

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ONS’s latest BICS
further pick-up in proportion of businesses trading
23 July 2020
The latest BICS (Business Impact of Coronavirus (COVID-19) Survey) release related to the initial results for the period 29 June - 12 July (BICS Wave 9).

Key results were:

·       Trading: of all responding businesses, 92% said they were trading between 29 June and 12 July 2020, compared with 86% of responding businesses between 1 and 14 June 2020 before non-essential retail was allowed to reopen in England (15 June).

·       On 17 July, overall footfall rose to two-thirds of its level the same day a year ago, the highest since lockdown began. The data are provided by “Springboard”, a specialist provider, and measure the volume of footfall compared with the same day the previous year and across the categories of high streets, retail parks and shopping centres.

·       Between 10 and 17 July, the total volume of job adverts increased to just over 50% of their 2019 average. These figures use job adverts provided by Adzuna, an online job search engine.

Source: ONS, “Coronavirus and the latest indicators for the UK economy and society”, 23 July 2020.

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Public sector net borrowing £35.5bn in June, £127.9bn in 2020Q2
21 July 2020

The ONS estimated public sector net borrowing (PSNB-ex, excluding public sector banks) in June 2020 was £35.5bn, compared with £7.2bn in June 2019 (figure 3). £35.5bn was the third highest borrowing figure since current records began in January 1993. The PSNB for May 2020 was revised down by £9.8bn to £45.5bn, largely because of stronger than previously estimated tax receipts and National Insurance contributions.

The PSNB in the first three months of FY2020 (April-June 2020) was £127.9bn, compared with £24.0bn in the same period last year, the highest borrowing in any April-June period on record (records began in 1993) (figure 6).

The CGNB was £33.7bn in June 2020, compared with £7.7bn in June 2019:
·       Central government (CG) receipts were £49.4bn, compared with £59.2bn in June 2019. In June 2020, tax revenue on a national accounts basis fell by 20.1% compared with June last year, with Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax receipts falling by 45.1%, 19.2% and 1.6% respectively.
·       In June 2020, CG spent £80.5bn, compared with £64.5bn in June 2019. Of this amount, £77.9bn was spent on its day-to-day activities (current expenditure), including £9.7bn of expenditure on the current job furlough schemes (CJRS and SEISS). The remaining £2.6bn was spent on capital investment (net).

The OBR forecast a PSNB of £322bn for FY2020 on 14 July (central scenario), excluding the effects of the Chancellor’s measures announced on 8 July (estimated to be about £50bn). Including the Chancellor’s measures brings the forecast to £372bn. The PSNB for FY2019 was £55.4bn, compared with £40.6bn in FY2018.

Concerning two other key metrics:
·       Public Sector Net Debt (excluding public sector banks, PSND ex) at end-June 2020 was £1,983.8bn, £195.5bn more than at the same point last year. The PSND/GDP ratio was 99.6%, an increase of 18.9 percentage points compared with the same point last year and the highest PSND/GDP ratio since FY1960.
·       The public sector debt interest to revenue ratio (DIR) in the rolling 12-months to June 2020 was 3.1% (table PSA4), below the 6.0% level set by the government as a target.

Source: ONS, “Public sector finances: June 2020”, 21 July 2020.

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Employment and vacancies continue to weaken in June
16 July 2020

The ONS has released three key statistics relating to the labour market in June, which clearly showed a deteriorating labour market.

Firstly, early estimates from Pay As You Earn Real Time Information (PAYE RTI) indicate that the number of payroll employees fell by 74,000 (MOM) in the month of June. Employees were down 649,000 (or 2.2%) in June 2020 compared with March 2020. The data are from HMRC.

Secondly, there were an estimated 333,000 vacancies in the UK in the three months to June 2020 (2020Q2); the lowest level since the Vacancy Survey began in 2001Q2. This was 497,000 (59.9%) fewer than a year earlier (YOY) and 463,000 (58.1%) fewer than in 2020Q1 (QOQ). These were the largest annual and quarterly falls in the history of the data time series.

There were quarterly (QOQ) decreases in all sectors. Contributing most strongly to the quarterly movement were the “wholesale, retail trade and repair of motor vehicles” industrial sector, down 92,000 (70.0%) and the “accommodation and food service activities” industrial sector, down by 78,000 (91.1%), both record quarterly falls. These industries have been impacted heavily by social distancing measures, with hotels, restaurants and retail stores being closed as a result.

Thirdly, the Claimant Count slipped slightly in June to 2.63mn, compared with 2.66mn in May 2020. The March figure was, however, 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 due wholly to changes in the number of people who were unemployed. The ONS stated that they were “…not able to identify the extent to which people who were employed (or unemployed) had affected the numbers”.


Main source: ONS, “Labour market overview”, 16 July 2020.

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Total annual pay growth in real terms falls to -1.3% in three months to May
16 July 2020

The rate of earnings growth has been slowing since April to June 2019, when it stood at 4.0% for total pay and 3.9% for regular pay, the highest nominal pay growth rates since 2008. It had slowed to 2.9% in December 2019 to February 2020 immediately prior to the coronavirus pandemic. Pay fell for most measures in May 2020, declining more in industries where furloughing was most prominent, many of these being the lowest-paying industries, in particular accommodation and food service activities.

In the three months to May:
·       In nominal terms, the growth of weekly earnings (AWE) fell to -0.3% (YOY) for total pay (including bonuses) and to +0.7% for regular pay (excluding bonuses). Bonuses fell (YOY).
·       In real terms, inflation adjusted, growth fell to -1.3% (YOY) for total pay and to -0.2% (YOY) for regular pay.


Main source: ONS, “Labour market overview”, 16 July 2020.

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126,000 employment fall, record falls in hours worked in 3 months to May
16 July 2020
 Some of the Labour Force Survey (LFS) data, covering the period up to end of May 2020, appeared deceptively strong, as the furloughed workers scheme continued to support employment and restrain unemployment rises. However, employment fell in the quarter and there were record declines in hours worked reflecting the number of people temporarily away from work, including furloughed workers. The ONS noted that “…there are still a large number of people temporarily away from work, including furloughed workers, although this is falling through May. New analysis shows that there were around half a million people away from work because of the pandemic and receiving no pay”.

Concerning employment in the three months to May:
·       Employment fell by 126,000 (QOQ) to 32.9mn, but was still 199,000 higher YOY. The ONS noted that, despite the QOQ fall, the estimated number of redundancies has not increased significantly over the period. Instead, experimental estimates based on returns for individual weeks suggested the number of respondents starting a new job declined greatly through the March to May period compared with the same period in previous years.
·       The ONS also noted that even though the number of employees increased in the quarter (by 97,000), the self-employed (full-time and part-time together) had fallen by 178,000 (QOQ).
·       The employment rate (the proportion of people aged from 16 to 64 who were in work) was 76.4%, 0.2 percentage points lower (QOQ) but 0.3 percentage points up (YOY).
·       The employment rate for men was 80.1%, 0.4 percentage points lower (QOQ) and 0.1 percentage point down (YOY). The employment rate for women was 72.7%, largely unchanged (QOQ) but 0.7 percentage points up (YOY).

Concerning unemployment in the three months to May:
·       Unemployment actually fell 17,000 (QOQ) to 1。35mn, but was 55,000 higher YOY. The ONS noted that, even though the QOQ figure showed a fall, this reflected an increase in discouraged workers, who are unemployed but not currently looking for work (in other words, becoming “inactive”).
·       Note: 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 3.9%, unchanged from the previous three months, but 0.1 percentage point higher 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.

Concerning hours worked in the three months to May:
·       The total actual weekly hours worked in the three months to May 2020 was 877.1 million, an annual (YOY) decrease of 175.3 million (16.7%). This was the largest annual decrease since estimates began in 1971, with total hours dropping to its lowest level since May to July 1997.
·       Average actual weekly hours fell by 5.5 hours (YOY) to a record low of 26.6 hours. The “accommodation and food service activities” industrial sector saw the biggest annual fall in average actual weekly hours; down 12.0 (YOY) hours to a record low of 16.0 hours per week.


Main source: ONS, “Labour market overview”, 16 July 2020.

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Producer prices inflation in June, -0.8% (output), -6.4% (input)
15 July 2020

The inflation rate for the output PPI (goods leaving the factory gate) was -0.8% (YOY) in June, compared with -1.2% (YOY) in May (revised, table 1). The ONS commented that “…petroleum products made the largest upward contribution to the change in the annual rate of output inflation.”

The ONS noted that prices for both petroleum products and crude oil had increased in the month (June, MOM) as lockdown and travel restrictions had eased and global demand had picked up. The monthly rate (MOM) for petroleum products was the highest since May 2018 whilst crude oil had seen the largest monthly increase since PPI records began. The annual growth rates (YOY) had picked up partly because of a base effect as crude oil prices rose sharply between May and June 2020 but fell sharply the same time last year.

The inflation rate for the input PPI (materials and fuels used in the manufacturing process) was -6.4% (YOY) in June, compared with May’s -9.4% (revised, table 3). The ONS explained that “…crude oil provided the largest upward contribution to the change in the annual rate of input inflation”. Crude oil prices rose 31.0% (MOM) in June to be 39.6% lower (YOY) (table 5). The annual fall in May was 57.4% (YOY).

The annual rate of inflation for imported materials and fuels was -6.7% (YOY) in June, compared with May’s -9.3% (revised, 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 0.4% (MOM) in June, but was only 0.1% lower YOY (table 4).

Source: ONS, “Producer price inflation, UK: June 2020”, 15 July 2020.

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CPIH, CPI inflation rates rise to 0.8% and 0.6% respectively in June
15 July 2020
The CPIH inflation rate rose to 0.8% (YOY) in June, compared with May’s 0.7% (YOY). (CPIH is the Consumer Prices Index including owner-occupiers’ housing costs and is the ONS’s preferred measure of consumer prices inflation). Rising prices for games and clothing were partly offset by falling prices for food.

The ONS noted that they had identified 67 items (accounting for 13.5% of the CPIH basket by weight) across the CPIH basket of goods and services, which were unavailable for consumers in June because of the coronavirus pandemic. Their prices were imputed.

The inflation rates for goods and services in June were -0.5% (-0.9% in May) and 1.7% (1.8% in May) respectively (table 3). The core rate inflation (excluding energy, food, alcoholic beverages & tobacco) rose to 1.5% (1.3% in May).

The Consumer Prices Index (CPI) YOY rate rose to 0.6% in June, compared with May’s 0.5% (which was the lowest rate since June 2016 when the YOY rate was also 0.5%).

Source: ONS, “Consumer price inflation, UK: June 2020”, 15 July 2020.

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