Release Date : 26 February Economic update - January Key data highlights:

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1 Release Date : 26 February 218 Economic update - uary 218 Key data highlights:. While uary figures showed an increase in consumer confidence and improvement in wage growth, the underlying long-term picture is pointing to sluggish growth. Households are expected to continue to feel the squeeze on their finances, and therefore their propensity to spend, as real earnings, when adjusted for inflation, are still running well below the inflation rate. At the same time, household savings are declining as debt servicing costs, as a share of disposable income, rise. As the economic effects of tightening monetary policy will take some time to validate, inflation is expected to remain relatively elevated, underpinning subdued consumer spending and a modest outlook for growth.. The UK business landscape has remained broadly upbeat, although the key data is showing inconsistency between strong business confidence and subdued investment. While business confidence remains strong, still elevated inflationary pressures, combined with the future outlook for consumer spending, are likely to create a sense that the economy might lose momentum and, therefore, contribute to a more subdued business environment in future. This is partly reflected in the business investment data, which showed that investment was flat in the final quarter of last year and is expected to grow at a muted pace, as the prevailing lack of clarity on Brexit negotiations will remain the main factor weighing on long-term investment decisions. Notes to Editor 1 For more information please call the UK Finance press office on or press@ukfinance.org.uk. 2 UK Finance is the trade association formed on 1 y to represent the finance and banking industry operating in the UK. It represents around 3 firms in the UK providing credit, banking, markets and payment-related services. The organisation brings together most of the activities previously carried out by the Asset Based Finance Association, the British Bankers Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. Next update: 26 ch 218

2 Release Date : 26 February 218 past 3 years Latest GDP The UK economy expanded by. in, slowing from.5% in the previous quarter. Growth in the latest quarter was driven by business services and finance within the services sector. Household spending grew at its slowest rate of annual growth since 212 by 1.8%, in part reflecting the increased prices faced by consumers. 1. quarter-on-year. quarter-on-quarter Inflation In uary 218, both the official inflation measure CPI and the CPIH measure, which includes home occupiers' housing costs, remained unchanged from their ember levels at 3. and 2.7% respectively. In their latest Inflation Report, the Bank of England pointed to a normalising inflation rate as the effect of a weak sterling starts to fade. However, still higher inflation is likely to be a drag on growth in the mid-term by squeezing both consumers and businesses annual CPI % % annual CPIH % Wages Nominal earnings rose by 2.5% in the three months to ember compared with a year earlier. This suggests that earnings are beginning to respond to the growing labour market. However, households are still feeling the squeeze when accounting for inflation, with real earnings falling by. and running below the inflation rate annual real earnings growth % Unemployment The unemployment rate increased to 4. in, an increase of. compared to the previous quarter. Despite the slight rise in unemployment, the UK's labour market continued to perform strongly, as employment is still at its record high. With consistently growing labour market, there is an expectation that the outlook for real earnings should become more optimistic. 6% 5% 4. quarter-on-quarter Consumer confidence Consumer confidence increased by 4 points in uary the highest level since tember. Even though the reported figures point to consumers' positive views of their financial prospects after the effect of spending more during the holidays, continued pressures on living costs from higher prices and subdued real earnings may feed negatively through next months' confidence outlook monthly index score Source: Haver Analytics, GfK Consumer Confidence Index Retail sales Retail sales in uary 218 showed overall sluggish growth, with the quantity bought up by only. from the previous month, while the average store prices slowed but continued a steady growth of 2.8% when compared to the same period last year. The underlying long-term picture is reflective of slowing growth, which can partly be attributed to a background of generally rising prices squeezing people's propensity to spend % volume (quantity bought), month-onmonth store prices, yearon-year

3 past 3 years Latest 1 Household savings ratio The household savings ratio fell back to 5. in from 5.6% in the previous quarter, suggesting that households have spent more than they saved over the period. As households face a squeeze from rising prices, falling real earnings and the outlook for higher interest rates on loans, it will put pressure on households' ability to save and build their finances. 8% 6% 5. household ratio (%), Household debt Household debt to income has been consistently increasing for the past three years. In, household debt reached 133.9% of household dispoisable income, 98. of which was comprised of mortgage debt. Household borrowing and inflation have outpaced real earnings growth, which is associated with faster growth of household liabilities. This, combined with the increased Bank Rate, is expected to press debt servicing costs as a share of disposable income % 98. household debt to income (%), of which mortgages (%), Source: Haver Analytics, Bank of England Property transactions and house prices The number of property transactions completed in the UK, with value of 4, or above, reached 11,25 in ember, representing 95 fewer transactions compared to the same month last year. This is in line with rising average house prices in the UK, growing by 5. in the year to ember, up from 5. in November. thousands 18 9% 16 8% 14 7% 12 6% 1 5% ,25 5. Residential property transactions over 4, GBP annual house price rates of change, % Source: Haver Analytics, Land Registry, ONS Business confidence Overall business confidence in uary 218 remained positive at 5, increasing to its highest level in 9 months. Business confidence has gained pace from its lowest level of 3 since the referendum vote in e, suggesting that firms still remain positive about their business activity plans. However, the prevailing lack of political clarity on Brexit negotiations will remain the main factor weighing on business confidence and investment decisions. 65% 6 55% 5 45% 4 35% business confidence, monthly, up (%) Source: Haver Analytics, Lloyds Business Barometer Sterling exchange rate and producer prices Falling sterling against foreign curriencies during and throughout has continously been putting pressure on import costs, contributing to higher prices, as the reverse relationship on the graph shows. The input PPI value increased to in uary, driven mostly by commodity prices, as they tend to be more volatile over time, and a subdued exchange rate. Crude oil prices showed the highest monthly growth at 4.9% and provided the largest contribution to input price pressures. index EUR/GBP broad exchange rate index, monthly EUR/GBP, monthly average input PPI, monthly Source: Haver Analytics, ONS.6% Business investment Growth in business investment in remained broadly unchanged from the previous quarter, remaining at 46bn of investment. The expectation is that real investment for the long term will continue to grow at a muted pace, as businesses remain wary of general macroeconomic conditions and Brexit uncertainty quarter-on-quarter % growth Company insolvencies There were a total of 4,382 company insolvencies in. Following changes to claimable expense rules, total company insolvencies increased by 7. compared to. Excluding that event, the underlying number of companies entering insolvency in fell by 17. compared to and by 1.9% compared with the same quarter in. 6, 5, 4, 3, 2, 1, 4,382 totals Source: The Insolvency Service

4 past 3 years Latest Trade in goods & services Comparing the three months to ember 2 with the same period in, the UK total trade 1 deficit in both goods and services widened by 3.8 billion. This was primarily due to increases of 7.5% -1 ( 8.7 billion) and 4.6% ( 1.9 billion) in goods and -2 services imports respectively. Trade deficit in oil, due to volatile oil prices, had the largest weighing -3 impact on trade in goods deficit. -4 billions bn bn Services balance, Goods balance, Next update: 26 ch 218

5 Release Date : 26 February Feb May Aug Nov Inflation annual CPI 1.6% 1.8% % 2.9% 2.6% 2.6% 2.9% annual CPIH 1.8% 1.9% % 2.7% 2.6% 2.6% 2.7% 2.8% 2.8% 2.8% 2.7% 2.7% Wages annual real earnings growth 1..6% % -.5% -.5% % % -. Consumer confidence monthly Retail sales Property transactions and house prices volume (quantity bought), month-onmonth store prices, monthon-year Residential property transactions over 4, GBP annual house price rates of change, % -1.5% -..7% % -.6%..5% % % 1.8% 2.7% % % 2.7% % 99,23 12,72 11,41 13,57 12,97 1,2 11,93 12,59 12,5 11,72 12,12 12,22 11, % 4.8% 3.8% 4.8% % Business confidence monthly broad exchange rate index, monthly Sterling exchange rate and producer prices EUR/GBP, monthly average input PPI, monthly For information or media enquiries, please contact press@ukfinance.org.uk Next update: 26 ch 218

6 Release Date : 26 February GDP quarter-on-quarter % 2.5% % 1.8% % 1.8% 1. quarter-on-year.8%.8%..6%..7%..5%.5%.7%...5%. Unemployment quarter-on-quarter % 5.5% 5.6% % 4.8% 4.8% 4.6% Household savings ratio % % % 9.5% % 6.9% % 5.6% 5. Household debt Business investment household debt to income (%), of which mortgages (%), quarter-on-quarter % growth 127.7% 127.8% 127.9% % 127.6% % 97.8% 97.9% 97.8% % % % % -.8% % %.5%.9%. Company insolvencies totals 3,945 3,898 3,843 3,718 3,593 3,54 3,769 3,557 3,625 5,594 4,3 4,774 4,83 4,382 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov Trade in goods and services Services balance, Goods balance, 21.7 bn 24.2 bn 23.1 bn 21. bn 2.6 bn 21.6 bn 22.3 bn 23. bn 23.4 bn 26.1 bn 25.3 bn 25.7 bn 26.9 bn 26.4 bn bn bn bn bn bn bn bn bn bn bn bn bn bn bn For information or media enquiries, please contact press@ukfinance.org.uk Next update: 26 ch 218