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

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1 PERSPECTIVES By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group UK GDP growth was a respectable 1.8% in 017 Ruth Lea Economic Adviser Arbuthnot Banking Group ruthlea@arbuthnot.co.uk th January 018 Introduction GDP (preliminary estimate) increased by a much-as-expected 0.5% in 017Q4, confirming the pick-up in economic growth since the first half of the year. 1 (We do, however, suspect some residual seasonality, which seems to depress first quarter data.) Growth was just 0.3% in both 017Q1 and 017Q whilst there was a 0.4% increase in 017Q3. For the year 017, GDP growth was 1.8%, little different from the 1.9% currently estimated for 016 (recently revised up from 1.8%). Given the maturity of the economic cycle such an outturn was perfectly respectable. Moreover, growth prospects look reasonable this year, helped by a growing global economy (see the IMF forecasts below) and a competitive currency, though the recent appreciation of sterling against the dollar has eaten into some of the competitiveness. (The /$ rate was /$1.4 on 6 January, compared with /$1.45 in May 016, whilst the / rate on 6 January was / 1.14 compared with / 1.85 in May 016.) GDP per head growth marginally picked up in 017, registering 1.%, compared with 016 s 1.1%. The dominant services sector, driven by business services and finance, increased by 0.6% (QOQ) and was the largest contributor to growth in 017Q4. Industrial production also rose 0.6% (QOQ), boosted by a quarterly rise of 1.3% in manufacturing. But mining and quarrying fell 3.9%, reflecting a significant fall in oil and gas extraction, caused by repair work made to the Forties pipeline. Construction fell for the third consecutive quarter, falling 1.0% (QOQ) in 017Q4, although annual growth in 017 was 5.1% due to a strong start in 017. Contribution to growth by industrial sector In order to calculate the contributions to GDP growth of the main component industries, the ONS uses their weights within GDP(O). Table 1 shows just how dominant the services sector is, accounting for 79.3% of GDP in 015 (the latest available), having increased from 7.1% in The sub-category which showed the biggest increase over this period was business services & finance, though note the relatively modest rise in financial/insurance services (its weight in 009 was 90/1000 and the sector has fallen back overall since the Great Recession). Government & other also showed a major expansion (proportionately bigger than business services & finance), where there were large increases in education and, especially, in health/social work. 1

2 The biggest loser over this period was industrial production (with a weight of just 140/1000 by 015, compared with 15/1000 in 1997), with large falls in mining & quarrying and in manufacturing. Construction s weight increased, however, whilst agriculture s weight was just 7/1000 (less than 1% of GDP) in 015. Table 1 Categories of output: 1997, 015 weights, total GDP(O)= Category, subcategories Weights of sub-categories Weights of categorie s Weights of categorie s Agriculture 11 7 Industrial production, within which: Mining & quarrying (including oil & gas) Manufacturin g Electricity, gas, steam & air 1 (within which oil & gas=16, peaking at 1 in 008) Water supply, 9 10 sewerage etc. Construction 5 61 Services, within which: Distribution, hotels & restaurants 140 (wholesale/retail=116, accommodation/food=4) Transport, storage & communicatio n Business services & finance Government & other services (including recreation) Total (GDP (O)) 97 (transport/storage=47, information/communication= 50) 94 (financial/insurance=60, real estate=147, professional=54, administrative/support=33) 191 (public administration=51, education=51, health/social=58, arts/recreation=1, other/miscellaneous=19) Weights of sub-categories 1 (within which oil & gas=9) 137 (wholesale/retail=108, accommodation/food=9) 104 (transport/storage=45, information/communication= 60) 39 (financial/insurance=68, real estate=139, professional=76, administrative/support=46) (public administration=47, education=61, health/social=74, arts/recreation=15, other/miscellaneous=5) Source: ONS, GDP, preliminary estimate, 017Q4, 6 January 018. Some non-addition due to rounding errors.

3 Charts 1a and 1b show the annual growth rates of the main components, along with their contributions to growth, as weighted. When comparing 016 and 017, the main point to note is that even though the GDP growth rate in 017 was little changed from 016 (1.8% versus 1.9%), the contribution from the dominant services sector fell quite sharply (from.0% in 016 to 1.3% in 017, chart 1b), partly reflecting the slowdown in the retail sector. But there was some pick-up in the contributions of both industrial production (supported by good growth in manufacturing) and construction. Arguably, this represents a positive rebalancing in the economy away from over-dependence on services. Chart 1a Annual growth rates of GDP(O) & main components (%) Agriculture Industrial production Of which: manufacturing Construction Services GDP growth Chart 1b Contributions to growth of main GDP(O) components (%) Agriculture Industrial production Of which: manufacturing Construction Services GDP growth Source: ONS, GDP, preliminary estimate, 017Q4, 6 January 018. There are some significant rounding errors in the contributions estimates. Expenditure components: rebalancing too in 017 The preliminary estimate of GDP is based entirely on output data and there is no breakdown by expenditure components. (The first estimates of which will be released on February for 017Q4 and the year 017.) However, we have three quarters of data and have forecast the fourth. It is instructive to note how the economy changed in 017, the first full year after the Brexit referendum vote, compared with 016. The growth of household consumption slowed in 017 as higher inflation (reflecting the post-brexit vote fall in the pound) ate into real earnings. Given our part forecast for 017, it seems that this component s 3

4 contribution to growth fell from a dominant 1.9% in 016 to about 1.0% in 017 (see chart and calculations in annex tables 1a-1c). But, offsetting this slowdown, the trade balance improved significantly. In 016 a worsening balance acted as a serious drag on growth, but in 017 it seems as though it contributed a substantial boost, as exports growth outstripped imports growth. The weaker pound, along with the global upturn, helped a much-needed (and arguably long overdue) rebalancing of the economy. General Government consumption contributed little and much of GFCF s robust contribution was offset by a drag on growth from the fall in inventories. There was probably also a turn-round in the ONS s statistical discrepancy (inserted to bring the GDP(E) data in to line with the headline GDP data), from a boost to growth in 016 to a drag on growth in 017. Chart Contributions to growth of main GDP(E) components (%) Household consumption General Government Gross capital formation Of which: GFCF Net trade Statistical discrepancy GDP growth Source of back data: ONS, Quarterly national accounts, 017Q3, December Q4 ABG forecast. Gross capital formation = GFCF (gross capital fixed formation) + change in inventories + net acquisitions of valuables. See annex tables 1a-1c for the calculations. Latest economic releases Apart from GDP, there have been other interesting data since the last Perspective (and see annex table ). Firstly, there was the usual mid-month group of inflation figures, which suggested that inflationary pressures are beginning to ease: CPI inflation may be starting to moderate. CPIH inflation (including owner-occupiers housing costs) slipped to.7% in December compared with.8% in November, whilst CPI inflation slipped to 3.0% from 3.1%. 3 The inflation rate for the input PPI (producer prices index) was 4.9% (YOY) in December, compared with 7.3% in November, partly reflecting base effects. But the output PPI inflation rate rose to 3.3% (YOY) in December, compared with November s 3.0%, reflecting higher food prices. 4 According to official data, UK house prices increased by 5.1% (YOY) in November, compared with 5.4% (revised up) in October. Prices rose just 0.1% in the month (MOM). The ONS commented that the annual growth rate has slowed since mid-016 but has remained broadly around 5% during Secondly, real activity surveys and indicators suggested growth was continuing, with a buoyant manufacturing sector but a less buoyant, though still growing, retail sector: The CBI s latest Industrial Trends Survey suggested manufacturing growth had accelerated over the last three monthswith growth in manufacturing output and domestic and export orders all picking up. 7 4

5 But the CBI s latest Distributive Trades Survey was less bullish, concluding that the volume of retail sales grew for the third consecutive month in the year to January, but at a slower pace than anticipated. 8 ONS data for December s retail sales suggested modest growth. They grew just 0.4% (QOQ) in 017Q4, to be 1.0% higher than a year earlier. For the year 017 as a whole, the quantity of retail sales rose 1.9% (YOY), the lowest annual growth since 013. The ONS added that internet sales continued to increase as a proportion of all non-seasonally adjusted retailing in December 017. They accounted for 18% of all retail in the month, compared with 17.1% in December More generally, the ONS said services output in the three months to November increased 0.4% (QOQ), to be just 1.3% higher than a year earlier. The ONS said that financial services and retail trade (still growing) made the largest contributions to the quarterly growth. 10 Thirdly, public sector net borrowing (PSNB) in December was a lower-than-expected.6bn, helped in part by a 1.bn credit from the EU, compared with one of 5.1bn in December The cumulative PSNB for FY017 to-date was 50.0bn, compared with 56.7bn recorded for the first 9 months of FY016. This was the lowest year-to-date (to December) net borrowing since 007. At the time of the Autumn (November) Budget the OBR forecast a total PSNB for FY017 of 49.9bn, compared with the ONS s current estimate of 46.0bn for FY At first glance, the OBR s forecast should easily be met. After-all, the PSNB year-to-date in FY017 is down 6.6bn (some rounding, 11.7%) on the same point a year earlier, in contrast to the OBR s forecast of a 3.9 billion (8.4%) rise over the full year (FY017). (See chart 3.) Net borrowing in the final three months of FY016 (January to March 017) showed a surplus of 10.6bn (rounding), whilst the OBR is suggesting that the surplus for January-March 018 will only be 0.1bn ( 10.5bn less). But the OBR have warned that several factors are likely to push up borrowing over the remainder of the financial year (compared with FY016), including lower selfassessment income tax receipts in January and February as dividend effects from last year (017) unwind. 13 But, caveats apart, the Government looks on target to meet the OBR forecast for FY017. Chart 3 Public Sector Net Borrowing (PSNB), FY017 compared with FY016 ( bn) Dec -.5 Apr-Dec Full year Implied -0.1 Jan-Mar FY016 (ONS) FY017 (ONS, full year OBR) FY017-FY016 Sources: (i) ONS, UK public sector finances: Dec 017, 3 January 017; (ii) OBR, Economic and fiscal outlook, November 017, for the forecast for FY017; (iii) OBR, Commentary on the public sector finances release, Dec 017, 3 January 018. Non-addition due to rounding errors. 5

6 Finally, there was the latest labour market report, which suggested the labour market remains fairly robust. 14 Employment grew by 10,000 (QOQ) in the three months to November, and was 415,000 higher than a year earlier, whilst the unemployment rate was 4.3%, the joint lowest rate since Moreover, the level of job vacancies is comfortably the highest since comparable records began in 001. The muchwatched earnings data were moderate, with average weekly earnings for employees (GB, nominal terms) increasing by.5% for total pay (including bonuses) and by.4% for regular pay (excluding bonuses) in the three months to November (YOY). On the crude data, the ONS estimated that annual real earnings fell by 0.% including bonuses and by 0.5% excluding bonuses. CPI inflation was 3.1% in November. But, as we discussed in a previous Perspective, the average weekly earnings (AWE) data, as indicators of households real spending power, have significant restrictions: 15 AWE data measure money paid per week, per job to employees (GB) in return for work done, before tax and other deductions from pay. Because they are measured before tax, they do not allow for changing tax bands, which have recently benefitted many taxpayers. The estimates do not include earnings of self-employed people and are therefore a partial measure of the workforce s total earnings. They do not allow for rising personal wealth, reflecting higher house prices and a rising stock market. In addition, the composition of the workforce collected in the Annual Survey of Hours and Earnings (ASHE) sample changes from year-to-year, reflecting changes in the structure of the workforce. 16 This can affect changes in median earnings. For example, creation of lower-paid jobs, or loss of highly-paid jobs, can both act to reduce the median. One approach to removing this compositional effect is to look only at jobs in which the employee has been in the same post for at least one year (termed continuous employment ). The change in median earnings for this continuously employed group shows how much a typical continuously employed person (that is, a person at the middle of the continuously employed distribution) in the current year is earning compared with the typical employee from the same group in the previous year. This analysis shows consistently higher growth rates over time for the continuously employed group compared with all employees (chart 4). In April 017 (the latest available) median earnings for full-time employees in this group were 3.4% higher than median earnings of full-time employees in April 016, compared with.% for all employees. One implication is that real earnings growth for this group have been positive since 005 with one exception (April 011). CPI inflation in April 017 was.7% (CPIH inflation was.6%). 6

7 Chart 4 Annual increase in average earnings (%), for all employees and those in continuous employment Continuous employment 3 All employees 1 CPI inflation All employees Continuous employment Sources: (i) ONS, Annual Survey of Hours and Earnings: 017 provisional and 016 revised results, 6 October 017. Data refer to median full-time gross weekly earnings for annual increases (April over April); (ii) ONS, UK consumer price inflation: December 017, 16 January 018. Brexit update Over the past fortnight there have been the following key developments: The European Union (Withdrawal) Bill passed the Report Stage and the Third Reading in the Commons on 17 January. There was the First Reading in the Lords on 18 January and there will be the Second Reading on 30 January, before moving on to the Committee Stage (probably until Easter). The Report Stage is then due to take place in the second half of April and the Third Reading in mid-may. If the Lords make amendments the Bill will return to the Commons for consideration, which may then return to the Lords depending on the Commons decisions ( Ping Pong ). Assuming eventual agreement on the final wording, the Bill then goes for Royal Assent. DExEU Secretary of State David Davis gave a speech on the transition period (which will follow Brexit day on 9 March 019 and probably end on 31 December 00). 17 He said that during the period the UK would be able to sign new trade deals, but no trade deals could come into force until it had ended. A semi-flagged up speech by the Prime Minister expected for February will not, apparently, now go ahead. Looking ahead (and see annex box 1 for more on the EU Exit Agreements): 18 Formal UK-EU talks are expected to start at end-january on the transition period (part of phase ), following on from phase 1, as agreed in December 017. The EU hopes to have broad agreement by March 018. Concerning the framework for the future trade relationship (also phase ), the next step is at end- March, when EU leaders will issue negotiating guidelines to the Commission s chief negotiator Michel Barnier. Formal negotiations on the future relationship are not expected to start until April. 19 The EU hopes to have broad agreement on this matter by October

8 Latest IMF forecasts The IMF recently released the January update of its world economic forecasts. 0 The main points to note were: Global economic activity continues to firm up, with growth projected to be 3.7% in 017, compared with 3.% in 016 (charts 5a and 5b and annex table 3). Moreover, the pickup in growth has been broad based, with notable upside surprises in Europe and Asia. Global growth has been revised up to 3.9% for 018 (with further growth of 3.9% in 019), reflecting increased global growth momentum and the expected impact of the recently approved US tax policy changes. However the IMF warned risks to the global growth forecast appear broadly balanced in the near term, but remain skewed to the downside over the medium term. On the upside, the cyclical rebound could prove stronger in the near term as the pickup in activity and easier financial conditions reinforce each other. On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence. Unsurprisingly, the US tax cuts were also behind the specific up-grades for the US. GDP growth was projected to be.3% for 017 (.% in October) and the.7% for 018 (.3% in October). Separately the US statistical authorities confirmed that GDP growth was.3% in Eurozone growth was revised up, reflecting greater optimism for France, Italy and, especially, Germany (of the major Eurozone economies.) UK GDP growth was unchanged at 1.5% for 018 and 1.5% growth was also pencilled in for 019. (See annex chart 1 for the IMF s UK forecasts since April 016.) Growth projections for China and India were little changed. Separately, the Chinese statistical authorities reported that GDP grew by 6.9% in 017, marginally better than expected. Chart 5a IMF GDP growth rates (%): October 017, January World GDP USA Eurozone UK 017 (Oct) 017 (Jan) 018 (Oct) 018 (Jan) 019 (Jan) 8

9 Chart 5b IMF GDP growth rates (%), January 018: G7 and BRICs economies Source: IMF, Brighter Prospects, Optimistic Markets, Challenges Ahead, January 018. See also annex table 3. 9

10 References 1. ONS, GDP, preliminary estimate, 017Q4, 6 January Ruth Lea, Oil prices likely to moderate this year, reducing inflationary pressures, Arbuthnot Banking Group, 15 January ONS, UK consumer price inflation: December 017, 16 January ONS, UK producer price inflation: December 017, 16 January ONS, House Price Index, UK: November 017, 16 January HM Land Registry, UK House Price Index (HPI) for November 017, 16 January 018. The UK s four countries continued to show different inflation rates in November: England (5.3%), Wales (4.5%), Scotland (3.6%) and Northern Ireland (6.0% (017Q3)). In England, there was, as always, a significant range across the regions: West Midlands (7.%), East Midlands (6.4%), North West (6.%), South West (6.%), East of England (6.0%), South East (5.7%), Yorkshire & Humberside (3.0%), North East (.3%) and London (.3%). 7. CBI, Manufacturing strengthens, but skilled labour shortages bite hard, 3 January CBI, Post-Christmas retail sales growth disappoints, 5 January ONS, Retail sales, December 017, 19 January ONS, UK index of services: November 017, 6 January ONS, Public sector finances, UK: November 017, 3 January OBR, Economic and fiscal outlook, November OBR, Commentary on the public sector finances release: December 017, 3 January ONS, UK labour market: January 018, 4 January Ruth Lea, Households spending power: real earnings tell only part of the story, Arbuthnot Banking Group, 3 October ONS, Annual Survey of Hours and Earnings: 017 provisional and 016 revised results, 6 October BBC, David Davis plays down Tory row over Brexit transition, 6 January DExEU, Procedures for the Approval and Implementation of EU Exit Agreements: written statement - HCWS34, 13 December BBC, What next for Brexit in 018?, 31 December IMF, Brighter Prospects, Optimistic Markets, Challenges Ahead, January BBC, US economy loses steam as imports surge, 6 January 018. Growth slowed to.6% (annualised QOQ) in 017Q4, reflecting a surge in imports, after 3.% in 017Q3 and 3.1% in 017Q.. BBC, China s economy grows by 6.9% in 017, 18 January

11 Annex Table 1a Contributions to growth of main GDP(E) components (%) (see table b) Household consumption Non-profit institutions General Government consumption Gross capital formation, of which: GFCF Net trade Statistical discrepancy (0) (0) (0.4) (-0.) GDP growth Table 1b GDP(E) components for 016 and ( bn) 017 ( bn) 017, change ( bn) Household consumption Non-profit institutions General Government consumption Gross capital formation: Change in component to change in GDP /34.5= % /34.5= /34.5= % Contribution to growth (%) 0.5%-0.3%=0.% GFCF /34.5= % Change in /34.5= %, drag on inventories growth Net acquisition of valuables Net trade (see table c) Statistical discrepancy 3. (7.8 in 015, -4.6, - 0.% drag on growth) /34.5= /34.5= % 8.6 (0 in 015, 0.4% boost to growth) /34.5= % drag on growth GDP growth % Table 1c Net trade, contribution to GDP(E) , part forecast Exports ( bn) (6.%) Imports ( bn) (3.3%) Trade balance ( bn) Change in trade balance ( bn)

12 Change in trade/change in GDP -9.6/54.6= /43.3= /36.6= /34.5= Trade balance: contribution to growth (-0.176)(3.1) =-0.55 (-0.6) (-0.053)(.3) =-0.1 (-0.1) (-0.396)(1.9) =-0.75 (-0.8) (0.403)(1.8) =0.75 (0.7) GDP ( bn) Change in GDP ( bn, % growth) 54.6 (3.1%) 43.3 (.3%) 36.6 (1.9%) 34.5 (1.8%) Source of back data: ONS, Quarterly national accounts, 017Q3, December 017. Gross capital formation = GFCF (gross capital fixed formation) + change in inventories + net acquisitions of valuables. Table Economic data tracker Date Release Source Quarter Outcome 1 Dec Car production (Nov) SMMT 017Q4-4.6% (YOY); home (-8.1% (YOY)), export (+1.3% (YOY)) 1 Dec Car production (Jan-Nov 017) SMMT -.0% (YOY); home (-9.0% (YOY)), export (flat (YOY)) Dec Current Account, Balance of Payments (017Q3) ONS 017Q3 Deficit:.8bn (4.5% of GDP, 017Q3), 5.8bn (5.1% of GDP, 017Q) Dec Current account: EU/non- EU ONS 017Q3 EU: deficit of 5.bn; non-eu: surplus of.4bn Dec Visible trade balance ONS 017Q3 Deficit: 33.6bn (017Q3), 3.3bn (017Q) Dec Services balance ONS 017Q3 Surplus: 7.7bn (017Q3), 6.bn (017Q) Dec Primary income balance ONS 017Q3 Deficit: 11.4bn (017Q3), 13.bn (017Q) Dec Secondary income balance ONS 017Q3 Deficit: 5.5bn (017Q3), 6.5bn (017Q) Jan Manufacturing PMI (Dec) Markit- 017Q4 Index: 56.3 (Dec), 58. (Nov) CIPS 3 Jan Construction PMI (Dec) Markit- 017Q4 Index: 5. (Dec), 53.1 (Nov) CIPS 4 Jan Services PMI (Dec) Markit- 017Q4 Index: 54. (Dec), 53.8 (Nov) 4 Jan Mortgage approvals for house purchase (Nov) CIPS BoE 017Q4 65,139 (Nov), after 64,887 (Oct), compared with 66,56 (average of previous 6 months) 4 Jan Total lending to individuals (Nov), of which: BoE 017Q4 Growth rate (YOY): 4.0% (Nov), 4.0% (Oct) 4 Jan Secured on dwellings BoE 017Q4 Growth rate (YOY): 3.3% (Nov), 3.% (Oct) 4 Jan Unsecured credit BoE 017Q4 Growth rate (YOY): 9.1% (Nov), 9.5% (Oct) 4 Jan Total loans to non-financial businesses (Nov) BoE 017Q4 Growth rate (YOY): 1.7% (Nov),.0% (Oct) 5 Jan Productivity (output per ONS 017Q3 +0.9% (QOQ), +0.8% (YOY) hour) 5 Jan New car registrations (Dec) SMMT 017Q4 Dec: -14.4% (YOY), of which diesel % (YOY) 1

13 5 Jan New car registrations (Jan- Dec 017) SMMT : -5.7% (YOY), of which diesel % 10 Jan Index of production (Nov) ONS 017Q4 Production (Nov): 0.4% (MOM), +.5% (YOY) 10 Jan Manufacturing output (Nov) ONS 017Q4 Manufacturing output (Nov): +0.4% (MOM), +3.5% (YOY) 10 Jan Construction output (Nov) ONS 017Q4 Output (Nov): 0.4% (MOM), 0.4% (YOY) 10 Jan UK trade in goods & services (Nov) ONS 017Q4 Trade deficit:.8bn (Nov),.3bn (Oct) 10 Jan UK trade in goods (Nov) ONS 017Q4 Visible trade deficit: 1.bn (Nov), 11.7bn (Oct) 10 Jan UK trade in services (Nov) ONS 017Q4 Services surplus: 9.4bn (Nov), 9.3bn (Oct) 10 Jan Monthly GDP estimates (3 months to Nov) NIESR 017Q4 Growth rate: +0.5% (3 months to Nov, QOQ) 10 Jan 017Q4 GDP forecast NIESR 017Q4 Growth rate: +0.5% (017Q4, QOQ) 16 Jan CPIH (Dec) ONS 017Q4 YOY inflation:.7% (Dec),.8% (Nov) 16 Jan CPI (Dec) ONS 017Q4 YOY inflation: 3.0% (Dec), 3.1% (Nov) 16 Jan PPI (output) (Dec) ONS 017Q4 YOY inflation: 3.3.% (Dec), 3.0% (Nov) 16 Jan PPI (input) (Dec) ONS 017Q4 YOY inflation: 4.9% (Dec), 7.3% (Nov) 16 Jan House prices (Nov, official) ONS 017Q4 YOY inflation: 5.1% (Nov), 5.4% (Oct) 19 Jan Retail sales (Dec) ONS 017Q4 Volume: -1.5% (MOM), +1.4% (YOY) 19 Jan Retail sales (3 months to ONS 017Q4 Volume: +0.4% (QOQ), 1.0% (YOY) Dec) 3 Jan Public Sector Net Borrowing (PSNB) (December) ONS 017Q4 +.6bn (Dec 017), compared with + 5.1bn (Dec 016). 3 Jan Public Sector Net Borrowing (PSNB) (FY to date) 3 Jan Public sector finances, public sector net debt (PSND) (December) ONS FY bn (Apr-Dec 017), compared with 56.7bn (Apr-Dec 016) ONS 017Q4 1,759.5bn (end-dec 017, 85.4% of GDP), compared with 1,697.bn (end- Dec 016, 84.7% of GDP) ONS 017Q4 +10k (QOQ), +415k (YOY) 4 Jan Employment (3 months to Nov) 4 Jan Unemployment (3 months ONS 017Q4-3k (QOQ), -160k (YOY) to Nov) 4 Jan Unemployment rate (3 ONS 017Q4 4.3%, compared with 4.8% a year months to Nov) earlier, joint lowest rate since Jan Vacancies (3 months to ONS 017Q4 Total vacancies: 810k, +17k (QOQ), Dec) +60k (YOY) 4 Jan Earnings (3 months to Nov) ONS 017Q4.5% (YOY, total pay, including bonuses),.4% (YOY, regular pay, excluding bonuses) 6 Jan GDP (017Q4, prelim ONS 017Q4 0.5% (QOQ), 1.5% (YOY) estimate) 6 Jan GDP: output breakdown ONS 017Q4 Services: +0.6% (QOQ); production: +0.6% (QOQ); construction: -1.0% (QOQ) 6 Jan GDP (017, prelim ONS : 1.8% (YOY), 016: 1.9% (YOY) estimate) 6 Jan Services (November) ONS 017Q4 0.4% (MOM), +1.6% (YOY) 13

14 Sources include ONS website. Box 1 Procedures for the Approval and Implementation of EU Exit Agreements, key facts Heading Details Background There will be at least two agreements: A Withdrawal Agreement will be negotiated under Article 50 of the Treaty on European Union (TEU) whilst the UK is a member of the EU. It will set out the terms of the UK s withdrawal from the EU (including an agreement on citizens rights, Northern Ireland and any financial settlement), as well as the details of any implementation (transition) period agreed between both sides. We will also negotiate the terms for our future relationship (Article 50() of the TEU sets out that the Withdrawal Agreement should take account of the terms for the departing Member State s future relationship with the EU). EU treaties require that the agreement governing the future relationship can only be legally concluded once the UK is a third country. After Brexit (9 March 019) there will be one or more agreements covering different aspects of the future relationship. How will the Withdrawal The Withdrawal Agreement will need to be signed by both parties and concluded by the EU and ratified by the UK before it can enter into force. Agreement be Michel Barnier wishes to finalise the Withdrawal Agreement by October 018. approved and brought into force? In the EU7, the agreement will then require the consent of the European Parliament (EP) and final sign off by the Council (of Ministers) acting by a qualified majority. It will not require separate approval or ratification by the individual Member States. In the UK, the Government has committed to hold a vote on the final deal in Parliament as soon as possible after the negotiations have concluded. This vote will take the form of a resolution in both Houses of Parliament and will cover both the Withdrawal Agreement and the terms for our future relationship. In addition to this vote, the Constitutional Reform and Governance Act 010 (CRAG) normally requires the Government to place a copy of any treaty subject to ratification before both Houses of Parliament for a period of at least 1 sitting days, after which the treaty may be ratified unless there is a resolution against this. If Parliament supports the resolution to proceed with the Withdrawal Agreement and the terms for our future relationship, the Government will bring forward a Withdrawal Agreement & Implementation Bill to give the Withdrawal Agreement domestic legal effect. This legislation will be introduced before the UK exits the EU and the substantive provisions will only take effect from the moment of exit. Similarly, we expect any steps taken through secondary legislation to implement any part of the Withdrawal Agreement will only be operational from the moment How will the agreement governing the UK s future relationship with the EU be approved and brought into force? of exit, though preparatory provisions may be necessary in certain cases. The agreement governing our future relationship with the EU can only be legally concluded once the UK has left the EU. This may take the form of a single agreement or a number of agreements covering different aspects of the relationship. Whatever their final form, agreements on the future relationship are likely to require the consent of the European Parliament and conclusion by the Council. If both the EU and Member States are exercising their competences in an agreement, Member States will also need to ratify it. In the UK, the Government will introduce further legislation where it is needed to implement the terms of the future relationship into UK law, providing yet another opportunity for proper parliamentary scrutiny. 14

15 The CRAG process is also likely to apply to agreements on our future relationship, depending on the final form they take. Source: DExEU, Procedures for the Approval and Implementation of EU Exit Agreements: written statement - HCWS34, 13 December Table 3 IMF GDP forecasts, growth rates (%): key economies January 018, update October 017, forecast World output (GDP) Advanced economies: US (G7) Eurozone, of which: Germany (G7) France (G7) Italy (G7) Spain Other major advanced economies: Japan (G7) UK (G7) Canada (G7) Emerging market & developing economies: Russia China India Brazil World trade (goods & services, volume) Oil prices (US $s), change Source: IMF, Brighter Prospects, Optimistic Markets, Challenges Ahead, January

16 Chart 1 IMF forecasts for UK GDP growth (%) since April Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Sources: successive IMF World Economic Outlooks, April 016, July 016, October 016, January 017, April 017, July 017, October 017, January