Danske Bank May 2015 Economic Update,

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1 Monthly update: June 1st 2015 Danske Bank Chief Economist, Twitter: angela_mcgowan Local Labour Market: NI Unemployment Quarterly Measure: Seasonally adjusted unemployment rate, as measured by the Labour Force Survey (LFS), was estimated at 6.2% for the period Jan-March This was up 0.5 percentage points over the quarter and down by 1.0 percentage points over the year Monthly claimants: The more recent seasonally adjusted claimant count stood at 44,300 (5.0 % of the workforce) during April 2015, down 900 from the previous month s revised figure. This is the 28th consecutive month in which there has been a fall in this measure of unemployment. Monthly claimants have fallen by 20,500 since the peak in December Long-term unemployment 62.1% of the unemployed have been unemployed for a year or more. NI Youth unemployment: The unemployment rate for year olds was 21.8% - up 3.2 percentage points over the year. Page 1

2 Housing Market The latest ONS data (published May 2015) shows that UK house price annual inflation in the year to March was 9.6 %. At the regional level prices rose 9.4% in England, 5.7% in Wales, 14.6% in Scotland and 7.5% in Northern Ireland. Excluding London and the South East, UK house prices increased by 8.1% in the 12 months to March The more robust DFP residential house price index was published in November and showed that local house prices in NI increased by 1% between Q and Q and increased by 6 O over the year to Q Transaction volumes saw a quarterly dip of 26 per cent in Q1. Other Local News: Agri-food centre: DETINI has announced the establishment of a 6.7million Northern Ireland Agri- Food Quest Competence Centre (AFQCC). Hosted at Queen s University, Belfast, the new Competence Centre will draw upon the research capabilities of both local universities and the Agri-food and Biosciences Institute (AFBI). The centre s primary focus will be on improving the international competitive position of the Northern Ireland Agri-food sector through innovation and co-operative research. Financing for the centre is made up of 5million of research and development assistance from Invest NI and a 1.7million investment from industry partners. The Centre will provide a platform for companies which want to pursue research projects in areas such as packaging, shelf-life, waste minimisation and food security. All companies operating in the Agri-food sector are entitled to explore how this centre could benefit their business. Page 2

3 Environmental Resource Park : DETI has also announced the establishment of an Environmental Resource Park at Giant s Park in Belfast. Part of Giant s Park, the biggest regeneration site in Belfast spanning 340 acres, is to be transformed into an Environmental Resource Park by the site s owner, Belfast City Council. It is anticipated that the park will attracting local, national and international investors and deliver social and economic benefits for Northern Ireland. The park will bring together companies working in renewable energy, recycling and other environmental technologies and will develop an innovative Cleantech business cluster, the first of its kind here. It has been funded through a European funding programme that specifically supports local economic development and will be open to private sector investors specialising in providing cutting edge solutions to global environmental issues, and in doing so create an exemplar cluster of Cleantech environmental businesses. United Kingdom: Labour Market: The Office of National Statistics (ONS) reported in May that the UK unemployment rate fell to 5.5% during Q period. In the same period the employment rate rose to 73.5 per cent of the working age population. Employment rose by 564,000 year on year and was up by 202,000 over the latest quarter Inflation: UK annual inflation moved into negative territory during April (-0.2%). In the Bank of England Inflation report the bank increased its inflation projection for 2015 slightly to 0.6% but lowered its projection for next year to 1.6%. The higher oil prices could lead to higher inflation in H2 15 than it previously anticipated while the stronger GBP continues to put downward pressure on inflation. That said, the projection still indicates that inflation will rise above the 2% target in Q3 17. Retail Sales: According to the ONS, retail sales ccontinued to have a sustained period of yearon-year growth in the 12-months to April. UK retail sales in April 2015 are estimated to have increased by 4.7% compared with April This was the 25th consecutive month of yearon-year growth, the longest period of sustained growth since May 2008 when there were 31 periods of growth. Page 3

4 Global picture Q1 turned out to be worse than expected for the US as the economy shrank 0.1% q/q. Bad weather and the strong dollar are largely to blame for the poor performance. Policy makers (including the Fed Chairwoman Janet Yellen) remain confident that the economy will pick up significantly from Q2 onwards. Negotiations between Greece and three creditor countries progress slowly but deadline for avoiding default now appears to be extended until mid-june. Danske Bank expect no new signals on policy in connection with the ECB meeting. Focus will be on ECB's plans to frontload bond purchases to avoid a seasonal squeeze. As growth in the first half looks to be a bit softer than Danske Bank had expected mainly due to weaker-thanexpected exports we have reduced our growth forecast for 2015 by 0.2 percentage points to 1.4% In China the flash estimate for HSBC manufacturing PMI in May improved slightly to 49.1 (Consensus: 49.3, DBM: 48.7) from a final reading of 48.9 in April. The details were relatively strong with new orders improving to 49.3 from On a negative note, export orders declined markedly to 46.8 from 50.3 suggesting that the improvement in new orders was driven solely by an improvement in domestic orders. Recently some volatility has returned to the global financial markets on the back of rising oil prices and rising rates and yields, particularly in Europe. This has caused some spillover to emerging markets, where for example the Central and Eastern European currencies have softened a bit. This said, it has hardly been dramatic and overall we believe the softness in the emerging markets is of a temporary nature. Page 4

5 Key statistics GDP [latest qoq] UK Q1 (+0.3%) Ireland Q Euro area Q1 (+0.4%) Inflation ( yoy) UK -0.2% (April) Ireland -0.7% (April) Euro Area -0.1% (March) Unemployment UK 5.5% NI 6.2 % Ireland 9.8 % (April) Euro area 11..3% (March) Employment NI 68.3% UK 73.5% Key interest rates UK BoE 0.5% ECB 0. 05% US Fed 0.25% Equity markets FTSE / Dow Jones 17,970 (29/05/15) 16:30 pm Currency markets / = /$ = (29/05/15) 16:30 pm Commodities Brent Crude $63.55 Gold Spot $1190 (29/05/15) 16:30 pm Contact List For economic research reports please visit: e.mail : anmcg@danskebank.co.uk Issued by Northern Bank Limited trading as Danske Bank (the Bank or We ). So far as the law or regulation allow, We disclaim any warranty or representation as to the accuracy or reliability of the information and statements in this commentary. We will not be liable for any loss or damage suffered from relying on this commentary. This commentary does not purport to contain all relevant information. Recipients should not rely on its contents but should make their own assessment and seek professional advice relevant to their circumstances. We may have proprietary positions in the products described in this commentary. This commentary is for information purposes only, is not intended as an offer or solicitation, nor is it the intention of the Bank to create legal relations on the basis of the information contained in it. No part of this commentary may be reproduced without our prior permission. Danske Bank is a trading name of Northern Bank Limited which is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Credit facilities other than regulated mortgages are not regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in Northern Ireland (registered number R568). Registered Office: Donegall Square West Belfast BT1 6JS. Northern Bank Limited is a member of the Danske Bank Group. Page 5