PERSPECTIVES. By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group

Transcription

1 PERSPECTIVES By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group The Eurozone: convergence remains elusive as one size fits all policies don t fit all Ruth Lea Economic Adviser Arbuthnot Banking Group ruthlea@arbuthnot.co.uk Introduction: a new Italian Government After months of political uncertainty, a new populist government was sworn in on 1 June. 1 The new Government, a coalition of the anti-establishment Five Star Movement (M5S, leader Luigi Di Maio) and right-wing League (leader, Matteo Salvini), is led by PM Giuseppe Conte. 2 The agreement on the new government came after nearly a week of political turmoil, following President Mattarella s rejection of the populists first choice for finance minister the Eurosceptic Paolo Savona. Mattarella had proposed technocrat and ex-imf staffer Carlo Cottarelli as primeminister designate. 3-4 The policies of the new Italian Government are set to challenge the EU s disciplinary restrictions for Eurozone members, especially on fiscal policy. Given Italy s high debt levels, they are unsurprisingly of concern to the financial markets. More specifically, policies include: 5-6 Trying to reform the euro from within. A referendum on Italy s membership of the euro now appears to be very unlikely. Much of the recent speculation about the Eurozone, and Italy s imminent departure from it, seems premature. A guaranteed income for the poor, apparently to cost 17bn. Two flat tax rates set at 15% and 20%, whilst families would receive a 3,000 annual tax deduction based on household income (very expensive). Planned sales and excise tax increases next year, worth 12.5bn, would be scrapped. And the abolition of the current pension reform that raises the retirement age in phases. Modifying the EU s Stability and Growth Pact (SGP), which sets a budget deficit limit of 3% of GDP. Debt would be reduced by the revival of internal demand, not by continuing with austerity. Italy s high debt/gdp ratio is discussed below. Apart from strongly expansionary economic policies, the League is strongly anti-immigration and the coalition s joint plan reflects this. 1

2 If the new Government pursues these policies, which seems likely, it can be expected there will be significant conflicts between Italy and Brussels. How these would be resolved can only be open to speculation at present. By way of a political footnote, Spanish PM Mariano Rajoy, the leader of the conservative People s Party and PM since 2011, was forced out of office on 1 June by a no-confidence vote in parliament. 7 Mr Rajoy s party was implicated in a corruption scandal. The new PM is Socialist leader Pedro Sánchez. Major changes in policy are not expected. The Eurozone, few signs of convergence: GDP and unemployment Last week s political crisis in Italy, as already indicated, led to much speculation about the future of the Eurozone. For all its economic imbalances and imperfections, however, it will probably continue to muddle through for the foreseeable future. 8 We will return to this issue, and the EU s policies towards it, in a future Perspective. But, in the meantime, it is instructive to note just how unbalanced the Eurozone is an economic bloc and, more specifically, how vulnerable Italy is. The euro s one size fits all monetary policy clearly does not fit all. There are few signs of underlying convergence throughout the bloc. If anything, some individual economies appear to be diverging. Starting with the growth performance of the key Eurozone countries since 2007, chart 1a shows that Germany s recovery has proved to be the most solid, whilst France s has been relatively anaemic. Spain has been growing strongly recently after a prolonged and deep recession, exacerbated by a collapsed property market and a banking crisis, as well as imposed austerity policies. Italian growth has been very poor. GDP in 2017 was still 5.5% lower than it was in And Greece s GDP, hampered by extraordinarily tough austerity policies as conditions for its bailouts, is currently over 25% lower than in By comparison, the UK s recovery since the Great Recession has been creditable. If a longer time scale is adopted, then Italy s relative performance looks equally lacklustre. Chart 1b (and annex table 1) shows that between 1999 (the start of the euro with the irrevocable locking together of the currencies ) and 2017, Italy s GDP rose by a paltry 6.3%, whilst Germany s increased by 27.8%, France s by 26.7%, Spain s by 37.9% and the UK s by 38.9%. Greece s GDP rose by only 2.4% overall. Chart 1a UK, selected Eurozone countries, GDP, 2007=0, Germany France UK Spain Italy Greece UK Germany France Italy Spain Greece 2

3 Chart 1b UK, selected Eurozone countries, GDP growth rates for & (%) UK Germany France Italy -5.5 Spain Greece (%) (%) Source: IMF, World Economic Outlook (April 2018) database. Data rebased on 2007=0 by the author for chart 1a. See annex table 1 for chart 1b. Turning to the labour market, there remain major disparities. Unemployment is still high in some key Eurozone economies and very high in Spain (though falling) and, especially, Greece. Chart 2 shows the latest unemployment rates for the total labour force and the under 25s for selected Eurozone countries and the UK. Within the Eurozone, total unemployment rates were 9.2% in France, 11.2% in Italy, 15.9% in Spain and 20.8% in Greece. Moreover, youth rates are still extraordinarily high in Greece (45.4%), Spain (34.4%), Italy (33.1%) and France (20.7%). By contrast, Germany s total unemployment rate was just 3.4% in April 2018 and its youth rate was down to 6.0%. Chart 2 UK, selected Eurozone countries, unemployment and youth (under 25s) rates (April 2018, %) UK Germany France Italy Spain Greece Rate (April 2017) Rate (April 2018) Youth rate (April 2017) Youth rate (April 2018) Source: Eurostat, Euro area unemployment at 8.5%, EU28 at 7.1%, April 2018, UK & Greek data relate to February. and public finances and ECB balances Other key data relate to general government deficits and debt especially relevant when considering Italy s vulnerable situation. Charts 3a and 3b show data for the general government balances and gross general government debt as percentages of GDP. 3

4 Concerning budget deficits, of the Eurozone s big four economies Germany is the outlier by running surpluses, and partly as a consequence, its debt to GDP ratio is falling and expected to be under 60% in Spain and France are still running deficits that are (arguably) uncomfortably close to the 3% of GDP limit. Suffice to say, Italy s deficit would (easily) be expected to exceed the 3% of GDP limit if the new Conte-led populist Government carried through its policies of fiscal expansion. Turning to debt, Italy and Greece still have extraordinarily debt-gdp high ratios. Even after the imposed austerity packages, Italy s ratio is projected by the European Commission to be 130% of GDP in 2019 and Greece s 170% of GDP. Specifically concerning Italy, the IMF calculates that Italian gross general government debt was around 2,250bn in Around a third, a low proportion by international standards, was held by non-residents (see annex table 2). Significantly, Italian banks are large holders of Italian government debt. A recent study by the Bank for International Settlements (BIS) showed that such debt represented nearly 20% of Italian banks assets - one of the highest proportions internationally Chart 3a UK, selected Eurozone countries, budget balance as % of GDP Chart 3b UK, selected Eurozone countries, gross general government debt as % of GDP Source: European Commission, Spring 2018 Economic Forecast: Expansion to continue, amid new risks,

5 Finally, the 19 Eurozone members national central banks (NCBs) have very disparate balances with the ECB. 13 The ECB provides data for the claims and liabilities of Eurozone NCBs vis-à-vis the ECB arising from cross-border payment flows executed through TARGET2, the Eurozone s settlement system. 14 These claims and liabilities are also known as the TARGET2 balances. Imbalances can arise if one Eurozone country is running a trade surplus with another, for example. If a German exports to, say, Italy the exporter is paid, but not by the importing country. He/she is paid by Germany s central bank (the Bundesbank), which receives a credit note from the importing country s central bank (and vice versa). 15 In addition, imbalances ballooned during the financial crisis, as the interbank market closed and intra-eurozone capital flight increased. The ECB stepped in to provide liquidity to compensate for the capital flight from banks of periphery countries to safe countries Chart 4 shows the latest balances for selected Eurozone countries (April 2018). Germany is running a huge surplus ( 902.4bn) with the ECB, whilst Italy has a very sizeable deficit ( 426.1bn). Other major surplus countries were Luxembourg and the Netherlands, whilst Spain ran a sizeable deficit. Chart 4 TARGET2 balances of selected participating NCBs, end-april 2018, bn Germany Luxembourg Netherlands Greece Portugal France Spain Italy Balances ( bn) Source: ECB, TARGET balances of participating NCBs, ECB website. UK economic data: a better start to 2018Q2 The data released over the past fortnight suggested some pick-up in activity at the start of 2018Q2, after the lacklustre performance in the first quarter. (See the updated economic data tracker, annex table 3.): 18 Retail sales (volume, GB) recovered by 1.6% (MOM) in April, after the 1.1% (MOM) fall in March. 19 According to the ONS, petrol sales reported the largest recovery in April, with a growth of 4.7% compared with a decline of negative 6.9% in the previous month as road closures affected travel in March. The SMMT announced that UK car production increased 5.2% (YOY) in April, partly reflecting 5

6 the timing of Easter, which depressed April s output in 2017 but not in Growth, however, was also buoyed by production ramp up at several plants to deliver a number of key new and updated models. 20 There were also other indicators for April: The CPI data for April were encouraging, with a fall from March s 2.5% (YOY) to 2.4%. 21 CPIH inflation (includes owner-occupiers housing costs) fell to 2.2% in April, down from March s 2.4%. The ONS said the largest downward contribution to the change in the rate came from air-fares, which were influenced by the timing of Easter. But rising prices for motor fuels produced the largest, partially offsetting, upward effect. Rising oil prices are also affecting producer input prices inflation, which rose to 5.3% in April (4.4% in March). 22 Crude oil prices increased 4.8% (MOM) in April to be 19.9% higher (YOY). The public finances are improving. Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a deficit of 7.8bn in April 2018, compared with 9.0bn in April This was the lowest April net borrowing since April is, of course, the first month of FY2018 and provides little guidance as to the outcome for the full financial year. The OBR forecast public borrowing of 37.1bn for the Spring Statement, around one quarter of the borrowing in FY2009, at the peak of the financial crisis. Borrowing was 153.0bn in FY2009. The PSNB for FY2017 (12 months) was revised down to 40.5bn (from 42.6bn), compared with 46.2bn recorded for FY2016. This was the lowest annual net borrowing since the financial year ending March 2007 (FY2006). At the time of the Spring Statement (March 2018) the OBR forecast a total PSNB for FY2017 of 45.2bn, some 4.7bn higher. Data released for 2018Q1 included: The ONS confirmed that GDP (second estimate) increased by 0.1% (unrevised) in 2018Q1 to be 1.2% higher than a year earlier. 24 The dominant services sector (79% of GDP) increased by 0.3% (QOQ) and was the largest contributor to growth. 25 The 0.3% increase was, however, relatively weak by recent standards. According to official data, UK house prices increased by 4.2% (YOY) in March, unchanged from February (revised) Prices fell 0.2% in the month (MOM). The ONS commented that the annual growth rate has slowed since mid-2016 [and] has remained generally under 5% throughout 2017 and into The decrease in UK house price growth specifically reflected falling prices in London. Average house prices in London decreased by 0.7% (YOY) in March Brexit update There have been few game-changing developments in the past fortnight, but this is an update of Brexit news: The European Union (Withdrawal) Bill will return to the Commons to consider the Lords amendments in June, probably starting week beginning 11 June. 28 There appears to have been little further progress on the UK-EU Brexit negotiations ahead of the next European Council meeting (European Summit) on June The Commons Library released a briefing paper on Brexit: Parliament s role in approving and implementing agreements with the European Union. 31 It concluded there is no domestic legal or constitutional requirement for a vote to be held in Parliament to approve the Withdrawal Agreement before it is concluded by the UK and the EU under Article 50 of the Treaty on the European Union (TEU). The Government can negotiate and sign an international treaty using its prerogative powers and without any formal parliamentary involvement. Article 6

7 50 TEU requires the consent of the European Parliament for the Withdrawal Agreement to be approved. The Commons Exiting the EU Committee released its latest report on the progress of the UK s negotiations on Brexit. 32 It concluded that the government may be forced to stay in the EU s customs union beyond 2020 if it could not agree new arrangements. 33 Separately Number stated that the UK was not seeking a new Brexit transition period beyond December 2020, despite press reports that the PM was considering proposing a second transitional period, lasting until 2023, which would cover customs and regulatory alignment in order to avoid a hard Irish border. 34 Controversially, HMRC Chief Executive Jon Thompson said that the UK Government s maximum facilitation customs arrangements model could take up to three years to implement and could cost businesses between 17bn and 20bn per year. 35 The figure was robustly challenged by Cambridge academic Graham Gudgin, who estimated the figure was closer to 2bn. 36 Domestically, discussions continued over solutions to the Irish border issue. 37 Bank of England governor Mark Carney stated that a disorderly Brexit could delay rises in interest rates, as the Bank would be obliged to act to shore up the economy under such circumstances. 38 Finally, the British government published a policy paper on its framework proposal for the future EU-UK economic partnership ( a deep and special partnership ): 39 It stated the partnership should cover more sectors than any other free trade agreement, including areas where our economies and peoples are linked, such as financial services, energy, transport, and digital, adding that the future partnership should break new ground on depth of mutual market access. It called for a mix of mutual recognition and equivalence. On goods, it demanded a system of mutual recognition to prevent non-tariff barriers, while for fisheries and agrifood products it called for an agreement based on outcome equivalence. The UK was also seeking mutual market access based on equivalent outcomes and cooperation in financial services. It further suggested we will consider keeping in step with the EU s state aid rules and competition regime, but pointed out binding commitments that go further than those in a standard FTA should be in return for commensurate levels of market access. The OECD s forecast The OECD s latest forecast ( 2018) was little changed overall from the previous one (March). 40 Global GDP growth was projected to be 3.8% in 2018 (3.9% in March) and 3.9% in 2019 (unchanged). They concluded that after a lengthy period of weak growth, the world economy is finally growing around 4%, the historical average of the past few decades. although long anticipated, the pick-up in investment remains weaker than in past expansions. The same is true for global trade, which is expected to grow at a respectable, albeit not spectacular, rate, unless it is derailed by trade tensions. However, contrary to previous periods, 4% world growth is not due to rising productivity gains or sweeping structural change. This time around the stronger economy is largely due to monetary and fiscal policy support. However, the OECD also warned of risks: in spite of stronger growth, there is no time for complacency. They identified the main risks as: Firstly, and foremost, an escalation of trade tensions should be avoided. See below for developments concerning trade wars. 7

8 The rise in oil prices. Oil prices have risen by close to 50% over the past year. Persistently higher oil prices would push up inflationary pressures and aggravate external imbalances in many countries. Geopolitical tensions might also contribute to sudden market corrections or a further rise in oil prices. Very low interest rates (in the past few years) have encouraged borrowing by households and corporations in some countries and have led to overvaluation of assets (e.g. houses, equities) in many others. In this context, rising interest rates might be challenging. Brexit and policy uncertainty in Italy could add pressures to the expansion in the Eurozone area. On the individual countries (chart 5): The forecasts for US growth were unchanged at 2.9% for 2018 and 2.8% for The Eurozone s prospects were broadly unchanged: 2.2% for 2018 (2.3% in March) and 2.1% for 2019 (unchanged). The OECD remained fairly gloomy about the UK, but, nevertheless nudged up its forecasts again to 1.4% for 2018 (1.3% in March and 1.2% last November) and to 1.3% for 2019 (1.1% in both March and November). Japan s annual growth was expected to be 1.2% in both 2018 and Expansion in the major emerging market economies remained firm. China was forecast to grow strongly, albeit slowing modestly, whilst India s growth was expected to be especially buoyant. Brazil and Russia were both expected to continue recovering. Chart 5 OECD GDP forecasts, growth rates (%) Source: OECD, Economic Outlook, Stronger growth, but risks loom large, See annex table 4. and trade wars The US President first announced plans for higher tariffs on steel and aluminium imports in March, but granted some exemptions while countries negotiated. 41 On 31, however, US Commerce Secretary Wilbur Ross announced that talks with the EU, Canada and Mexico had not made 8

9 enough progress to warrant a further reprieve, meaning tariffs of 25% on steel and % on aluminium would now come into effect. 42 In response, Europe, Canada and Mexico have announced they were planning retaliatory moves. The EU has issued a -page list of tariffs on US goods ranging from Harley-Davidson motorcycles to food products. On 18, the EU told the WTO it planned to impose counter measures affecting goods worth almost 3bn, if the higher US tariffs went ahead. If approved by the EU s 28 member states, the sanctions would come into effect in mid-june. 43 The EU has also said that it would challenge the US move at the WTO. Whilst these measures are unhelpful to world growth, the economic effect is expected to be limited, unless there is a major escalation of trade wars. 44 It should also be noted Mr Ross has said the US President could lift the tariffs or alter them at any time, depending on the outcome of any subsequent discussions. References 1. Ruth Lea, Spring Statement: higher growth and improved public finances, Arbuthnot Banking Group, 12 March 2018, for discussion of the Italian General Election results. 2. BBC, Italy s populist coalition: What you should know, 1 June BBC, What is Italy s political crisis all about?, BBC, Carlo Cottarelli: Italy president names stop-gap PM, BBC, Italy s populist coalition: What you should know, 1 June Ambrose-Evans Pritchard, Italy s parallel currency plan a direct threat to Eurozone monetary union, Daily Telegraph, , discussed the minibot policy being prepared by the M5S and the League. The minibot scheme would create a rival payment structure based on IOU notes, which would subvert the monetary control of the ECB. 7. BBC, Mariano Rajoy: Spanish PM forced out of office, 1 June One of the former treasurers of the People s Party was convicted of receiving bribes, money laundering and tax crimes and given a 33-year jail sentence. Many Spanish voters, exasperated by corruption scandals involving the traditional centre-right PP and centre-left Socialist parties, have abandoned them for newcomers like the left-wing Podemos (We Can) and pro-market Ciudadanos (Citizens), as well as regional parties. 8. Ruth Lea, The Eurozone will muddle through for the foreseeable future, Arbuthnot Banking Group, 22 July IMF, World Economic Outlook (April 2018) database, for gross GG debt data.. Eurostat, Debt mainly held by non-residents in half of the EU member states, 20 June 2017 (2016 data). 11. Basel Committee on Banking Supervision, The regulatory treatment of sovereign exposures, December Wolf Street, Which Banks Are Most Exposed to Italy s Sovereign Debt? (Other than the Horribly Exposed Italian Banks), ECB, TARGET balances of participating NCBs, ECB website. TARGET stands for Trans- European Automated Real-time Gross Settlement Express Transfer System. 14. TARGET2 is run by the Eurosystem (the ECB and the 19 NCBs). 15. Gunnar Beck, Germany and the EU can t afford to drive a hard bargain overt Brexit, LSE Blog, 19 September James Conway & Michael O Connor, The increasing significance of TARGET2, Centre for Policy Studies, June

10 17. Brueghel (think tank), What is the meaning of TARGET balances?, 29 February They wrote this suggests that TARGET2 balances should be interpreted as evidence of the decentralised distribution of central bank liquidity within the Eurosystem: countries undergoing net payment outflows need to rely more on Central Bank liquidity provision than countries in which money are flowing in. According to this view, TARGET2 can be interpreted as a compensation mechanism that allows sound banks in stressed countries to cover liquidity needs. Another way of expressing the significance of the balances is to say TARGET2 effectively transfers money from richer to poorer Eurozone countries a stealth bail-out. 18. Ruth Lea, Bank sees 2018Q1 as temporary soft patch, hinting interest rate rise likely this year, Arbuthnot Banking Group, , for last tracker. 19. ONS, Retail sales, GB: April 2018, SMMT, April boost for UK car manufacturing as new models drive growth, ONS, Consumer price inflation: April 2018, ONS, Producer price inflation: April 2018, ONS, Public sector finances, UK: April 2018, ONS, Second estimate of GDP: 2018Q1, ONS, Index of services, UK: March 2018, ONS, UK house price index: March 2018, HM Land Registry, UK house price index summary: March 2018, The UK s four countries continued to show different inflation rates in March: England (4.0%), Wales (3.5%), Scotland (6.7%) and Northern Ireland (4.2% (2018Q1)). In England, there was, as always, a significant range across the regions: East of England (5.8%), East Midlands (5.6%), North West (5.2%), West Midlands (5.1%), South West (4.9%), Yorkshire & Humberside (3.7%), South East (3.3%), North East (2.1%), and London (-0.7%). 28. Bloomberg, sets course for Brexit showdown over customs union in June, BBC, Brexit: UK official warns EU over talks insult, BBC, Brexit: UK is playing hide and seek in talks, says EU negotiator, Commons Library Briefing Papers, Brexit: Parliament s role in approving and implementing agreements with the European Union, House of Commons, Exiting the EU Committee, The progress of the UK s negotiations on EU withdrawal (March- 2018), 5 th report of session , HC 60, BBC, Brexit: MPs say UK might have to extend customs union membership, Open Europe, Newsletter, , on new transition period. 35. BBC, Brexit: Technology-based customs system could cost 20bn, Graham Gudgin and John Mills, Customs Costs Post-Brexit, Briefings for Brexit, The Sun, David Davis draws up post-brexit plan for Northern Ireland to have joint UK-EU status and buffer zone, 1 June BBC, Carney warns on disorderly Brexit fallout, HM Government, Framework for the UK-EU partnership: Economic partnership, 2018, OECD, Economic Outlook, Stronger growth, but risks loom large, BBC, US steel tariffs: Germany's Merkel calls for EU exemption, 9 March Open Europe, Newsletter, US introduces punitive tariffs on steel and aluminium imports from EU, Canada, Mexico, 1 June BBC, Trade war looms as Trump imposes steel tariffs, 1 June ING, US-EU trade war: Time s running out,

11 Annex Table 1 UK, selected Eurozone countries, GDP, Cumulative growth (%) UK ( bn) 1, , , % 11.5% Germany ( bn) 2, , , % 12.3% France ( bn) 1, , , % 7.2% Italy ( bn) 1, , , % -5.5% Spain ( bn) ,8.4 1, % 2.8% Greece ( bn) % -25.4% Source: IMF, World Economic Outlook (April 2018) database. Table 2 UK, selected Eurozone countries, debt statistics GDP, 2017 Gross GG debt, 2017 Debt, %, nonresidents (2016) UK ( bn) 1, , % Germany 2, , % ( bn) France ( bn) 2, , % 1,153.6 Italy ( bn) 1, , % Spain ( bn) 1, , % Greece ( bn) Na Na Debt, non-residents, calculated from columns 2 & 3 Sources: (i) IMF, World Economic Outlook (April 2018) database, for GDP and gross GG debt; (ii) Eurostat, Debt mainly held by non-residents in half of the EU member states, 20 June 2017 (2016 data). Table 3 UK economic data tracker Date Release Source Quarter, year 29 Mar Current Account, Balance of Payments (2017Q4) Outcome ONS 2017Q4 Deficit: 18.4bn (3.6% of GDP, 2017Q4), 19.1bn (3.7% of GDP, 2017Q3) 29 Mar Visible trade balance ONS 2017Q4 Deficit: 35.7bn (2017Q4), 32.9bn (2017Q3) 29 Mar Services balance ONS 2017Q4 Surplus: 28.1bn (2017Q4), 27.7bn (2017Q3) 29 Mar Primary income balance ONS 2017Q4 Deficit: 6.6bn (2017Q4), 8.4bn (2017Q3) 29 Mar Secondary income balance ONS 2017Q4 Deficit: 4.2bn (2017Q4), 5.6bn (2017Q3) 11

12 29 Mar Current Account, Balance of Payments (2017) 29 Mar Current account: ONS 2017 Deficit: 82.9bn (4.1% of GDP, 2017), 113.6bn (5.8% of GDP, 2016) ONS 2017 EU: deficit of 95.6bn; non-eu: surplus of 12.7bn EU/non-EU 29 Mar Visible trade balance ONS 2017 Deficit: 135.6bn (2017), 135.5bn (2016) 29 Mar Services balance ONS 2017 Surplus: 7.0bn (2017), 94.8bn (2016) 29 Mar Primary income balance ONS 2017 Deficit: 33.3bn (2017), 50.4bn (2016) 29 Mar Secondary income balance ONS 2017 Deficit: 21.0bn (2017), 22.5bn (2016) 1 Manufacturing PMI (Apr) Markit- 2018Q2 Index: 53.9 (Apr), 54.9 CIPS 2 Construction PMI (Apr) Markit- 2018Q2 Index: 52.5 (Apr), 47.0 CIPS 3 Services PMI (Apr) Markit- 2018Q2 Index: 52.7 (Apr), 51.7 CIPS 4 New car registrations (Apr) SMMT 2018Q2 Apr: +.4% (YOY), of which diesel -24.9% (YOY) 4 New car registrations (Jan-Apr) SMMT 2018Q2 Jan-Apr: -8.8% (YOY), of which diesel -31.9% (YOY) Index of production ONS 2018Q1 Production (2018Q1): +0.6% (QOQ), +2.0% (YOY) Manufacturing output ONS 2018Q1 Manufacturing output (2018Q1): +0.2% (QOQ), +2.5% (YOY) Construction output ONS 2018Q1 Output (2018Q1): -2.7% (QOQ), -2.7% (YOY) UK trade in goods & services ONS 2018Q1 Trade deficit: 3.1bn, 1.2bn (Feb) UK trade in goods ONS 2018Q1 Visible trade deficit: 12.3bn,.4bn (Feb) UK trade in services ONS 2018Q1 Services surplus: 9.2bn, 9.2bn (Feb) Monthly GDP estimates (3 months to Apr) NIESR 2018Q1 Growth rate: +0.1% (3 months to April) 15 Productivity (output per ONS 2018Q1-0.5% (QOQ), +1.0% (YOY) hour), flash 15 Employment (3 months ONS 2018Q1 +197k (QOQ), +396k (YOY) to Mar) 15 Unemployment (3 ONS 2018Q1-46k (QOQ), -116k (YOY) months to Mar) 15 Unemployment rate (3 months to Mar) ONS 2018Q1 4.2%, compared with 4.6% a year earlier 15 Vacancies (3 months to Apr) ONS 2018Q2 Total vacancies: 806k, -16k (QOQ), +17k (YOY) 15 Earnings (3 months to ONS 2018Q1 2.6% (YOY, total pay, including 12

13 Mar) bonuses), 2.9% (YOY, regular pay, excluding bonuses) 22 Public Sector Net Borrowing (PSNB) (Apr) ONS 2018Q2 7.8bn deficit (Apr 2018), compared with 9.0bn deficit (Apr 2017). 22 Public Sector Net Borrowing (PSNB) ONS FY bn deficit (Apr 2018), compared with 9.0bn deficit (Apr 2017) (FY2018, to date) Public sector finances, public sector net debt (PSND) (Apr) ONS 2018Q2 1,777.3bn (end-apr 2018, 85.1% of GDP), compared with 1,720.5bn (end-apr 2017, 84.83% of GDP) CPIH (Apr) ONS 2018Q2 YOY inflation: 2.2% (Apr), 2.3% CPI (Apr) ONS 2018Q2 YOY inflation: 2.4% (Apr), 2.5% PPI (output) (Apr) ONS 2018Q2 YOY inflation: 2.7% (Apr), 2.7% PPI (input) (Apr) ONS 2018Q2 YOY inflation: 5.3% (Apr), 4.4% House prices (Mar, ONS 2018Q1 YOY inflation: 4.2%, 4.2% (Feb) official) Retail sales (Apr) ONS 2018Q2 Volume: 1.6% (MOM), 1.4% (YOY) Retail sales (3 months to Apr) ONS 2018Q2 Volume: 0.1% (QOQ), 1.4% (YOY) GDP (2018Q1, 2 nd ONS 2018Q1 0.1% (QOQ), 1.2% (YOY) estimate) GDP per head (2018Q1) ONS 2018Q1-0.1% (QOQ), 0.6% (YOY) GDP: output breakdown (2018Q1) GDP: expenditure breakdown (2018Q1) ONS 2018Q1 Services: +0.3% (QOQ); production: +0.6% (QOQ); construction: -2.7% (QOQ) ONS 2018Q1 Household consumption: +0.2% (QOQ), General Government spending: 0.5% (QOQ); GFGC: 0.9% (QOQ); exports: -0.5% (QOQ); imports: -0.6% (QOQ) Services ONS 2018Q1 0.1% (MOM), +1.1% (YOY) Car production (Apr) SMMT 2018Q2 Apr: total (+5.2% (YOY)); home (+7.3% (YOY)), export (+4.7% (YOY)) Car production (2018, SMMT 2018 Jan-Apr: total (-3.9% (YOY)); home (- YTD).3% (YOY)), export (-2.2% (YOY)) Mortgage approvals for BoE 2018Q2 62,455 (Apr), after 62,802 (Feb), house purchase (Apr) compared with 63,968 (average of Total lending to individuals (Apr), of which: previous 6 months) BoE 2018Q2 Growth rate (YOY): 4.1% (Apr), 4.0% 13

14 Secured on dwellings BoE 2018Q2 Growth rate (YOY): 3.4% (Apr), 3.3% Unsecured credit BoE 2018Q2 Growth rate (YOY): 8.8% (Apr), 8.6% Total loans to nonfinancial BoE 2018Q2 Growth rate (YOY): 2.0% (Apr), 3.0% businesses (Apr) 1 June Manufacturing PMI () Markit- CIPS 2018Q2 Index: 54.4 (), 53.9 (Apr) Sources include ONS website. Table 4 OECD GDP forecasts, growth rates (%) 2018, forecast March 2018, interim November 2017, forecast World output US Eurozone, of which: Germany France Italy Japan Canada UK China India Brazil Russia Sources: (i) OECD, Economic Outlook, Stronger growth, but risks loom large, ; (ii) OECD, Interim forecast, Getting stronger, but tensions are rising, 13 March