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

PERSPECTIVES By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group Increasing concerns about global economic growth, especially in the Eurozone Ruth Lea Economic Adviser Arbuthnot Banking Group ruthlea@arbuthnot.co.uk 07800 608 674 28 th January 2019 Introduction: the IMF downgrades forecasts We discussed the then-latest forecasts from three major forecasting institutions (the IMF, the OECD and the European Commission) in a recent Perspective, concluding that the world economy was slowing and growth forecasts were being systematically revised down. 1 The IMF has recently released its January update, revising its overall forecasts down again, adding that risks to global growth tilt to the downside. 2 They cited tighter financial conditions as general risks to global growth along with the continuing US-China trade tensions, with associated with the higher tariffs. 3 The IMF still expected world growth to be around 3.7% in 2018 (no change compared with the October 2018 forecast), but they revised it down for 2019 to 3.5% (3.7% in October). (See chart 1a, and annex table 1.) The IMF s growth forecast for the US remained unchanged. It was expected to decline from 2.9% in 2018 to 2.5% in 2019 and 1.8% in 2020 with the unwinding of the recent fiscal stimulus and as the federal funds rate temporarily overshoots the neutral rate of interest. The US current account deficit would continue to widen a strong domestic demand growth would support rising imports. We would add that recent economic data from the US suggest continued growth, the latest labour market report was very positive. 4 The biggest downgrades to the forecast between October 2018 and January 2019 were for the Eurozone. Moreover, these downgrades followed reductions in expectations between July and October 2018. Chart 1b shows the overall effects of these revisions: Eurozone growth is now expected to have been 1.8% in 2018 (compared with 2.0% in October and 2.2% in July), followed by an expansion of just 1.6% in 2019 (down from 1.9%). Last year s growth spurt has all but dissipated. The revisions to Germany s growth were quite significant. Reflecting the loss of growth momentum in the second half of 2018, GDP is now expected to have increased by just 1.5% in 2018 (compared with 1.9% in October and 2.2% in July), followed by just 1.3% in 2019. The IMF attributed the weakening to soft private consumption, and weak industrial production 1

(especially in the auto sector) following the introduction of revised auto emission standards and reflecting subdued foreign demand (not least of all in China, we add). 5 German GDP fell 0.2% (QOQ) in 2018Q3 and probably all but flat-lined in 2018Q4. 6-7 French growth has also been downgraded, partly reflecting negative impact the street protests and industrial action. Growth is expected to 1.5% in 2018 and 2019 and 1.6% in 2020. Similarly, growth prospects in Italy have weakened, reflecting soft domestic demand and higher borrowing costs with sovereign yields remaining elevated. We add there are increasing fears of recession in Italy, and renewed concerns about the Italian banking system. 8 In addition, the Italian Government has compromised with the Commission s demands for lower budget deficits, moderating its fiscal stimulus programme. 9-10 The IMF left their UK forecasts unchanged, projecting 1.4% for 2018, 1.5% for 2019 and 1.6% for 2020. The unchanged projections relative to the October forecast reflected the offsetting negative effect of prolonged uncertainty about the Brexit outcome and the positive impact from fiscal stimulus announced in the 2019 budget. Their baseline projection assumed that a Brexit deal was reached in 2019 and that the UK transitions gradually to the new regime. However, as of mid-january, the shape that Brexit will ultimately take remains highly uncertain. The IMF have warned on previous occasions about the potential costs to the British economy of a No Deal Brexit. 11 Note also the IMF cited a No Deal Brexit as a potential risk to global growth. The forecasts for Japan remain lacklustre, whilst China was expected to slow from 6.6% in 2018 to 6.2% in 2019 and 2020, reflecting the combined influence of the needed financial regulatory tightening and trade tensions with the US. 12 The deceleration was despite China s fiscal stimulus, which had offset some of the impact of higher US tariffs. A greater-thanenvisaged slowdown in China was cited as another potential risk to global growth. Chart 1a IMF GDP growth forecasts (%) (January), selected economies, 2018-2020 7 6 6.6 6.2 6.2 5 4 3.7 3.5 3.6 3 2.9 2.5 2 1 1.8 1.6 1.7 1.5 1.6 1.5 1.5 1.6 1.3 1 0.9 0.6 1.4 1.5 1.6 1.8 1.1 0.9 0.5 0 2018 2019 2020 2

Chart 1b IMF GDP growth forecasts (%), July 2018, October 2018, January 2019, Eurozone, UK, 2018-2019 2.5 2 1.5 1 2.2 2.2 2.1 2 1.9 1.9 1.9 1.9 1.8 1.8 1.7 1.6 1.6 1.6 1.5 1.5 1.5 1.3 1.5 1.2 1 1.2 1 1.5 1.5 1.5 1.4 1.4 1.4 0.6 0.5 0 Eurozone Germany France Italy UK 2018 (Jul 2018) 2018 (Oct 2018) 2018 (Jan 2019) 2019 (Jul 2018) 2019 (Oct 2018) 2019 (Jan 2019) Sources: IMF, World Economic Outlook: (i) July 2018; (ii) October 2018; (iii) January 2019 update, A Weakening Global Expansion. See annex table 1. and the ECB expresses concerns about the slowing Eurozone economy Following the January meeting of the monetary policy setting Governing Council of the ECB, ECB President Mario Draghi offered a downbeat assessment of the Eurozone economy. 13-14 He said: Incoming data have continued to be weaker than expected as a result of a slowdown in external demand compounded by some country and sector-specific factors. While the impact of some of these factors is expected to fade, the near-term growth momentum is likely to be weaker than previously anticipated. Looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, further employment gains and rising wages, lower energy prices, and the ongoing albeit somewhat slower expansion in global activity. The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility. The Eurozone s growth spurt does indeed seem to have dissipated. Moreover, the latest industrial production data (more below) for the Eurozone s largest economies gave rise to concerns that growth could slow more significantly than projected by the IMF, with Italy possibly bordering on recession. Suffice to say, monetary policy remains very accommodative with very low official interest rates (see Central Bank Watch, annex table 2) and there are very few signs that the ECB is intending to raise rates in the foreseeable future. On the contrary, the ECB may provide more monetary stimulus, to help the slowing economy. Given the low interest rates, the ECB has very little scope for cutting them further. So if need be, the ECB may consider further quantitative easing, which ended at the end of 2018. 15-17 3

Turning to the latest industrial production data, Eurostat announced recently that the Eurozone s production output fell 1.7% (MOM) in November, to be 3.3% down YOY. 18 Germany s output decline was especially sharp, with a fairly broad-based MOM fall of 1.9%, the third consecutive month of decline, to give a YOY decrease of 5.1%. 19 The car industry has been negatively affected by a new emissions regime and slowing overseas demand, as noted by the IMF. For the Eurozone s other big economies the annual falls for production were 1.9% (France), 2.6% (Italy) and 2.8% (Spain). By comparison, the annual decline for the UK was 1.8%. The renewed concerns over the Eurozone provide an opportunity to update the assessment of the overall growth performance since the inception of the single currency in 1999 (the irrevocable locking together of the currencies ). 20 Chart 2a provides the average annual GDP growth rates for selected Eurozone countries, the UK and the US for three periods: 1999-2007: from the start of the single currency (1999) to the peak year before the Great Recession (2007). Note that Greece did not join the euro until January 2001 (see annex table 3 for members of the Eurozone). 2007-2018: since the pre-recession peak year to 2018. 1999-2018: encompassing both of the above. France s average growth rates easily outstripped Germany s in the earlier period (1999-2007), reflecting the German economy s stagnation in the early 2000s. Since the Great Recession, however, German growth has proved solid overall, helped by buoyant export markets, whilst France s has been relatively anaemic. Italy s average annual growth in the earlier period was around 1.5%, but since 2007 recovery has proved elusive. GDP in 2018 was still 5% down on the level of 2007. For the earlier period (1999-2007), both Spain and Greece benefited from the lower interest rates delivered by single currency membership but they both dangerously over-expanded, requiring EU bailouts. Spain has been growing strongly since 2013-14 after a prolonged and deep recession, exacerbated by a collapsed property market and a banking crisis, as well as imposed austerity policies (chart 2b). Greece, however, has struggled to recover, hampered by extraordinarily tough austerity policies as conditions for its bailouts. Greece s GDP in 2018 was still nearly 25% lower than in 2007. Considering the total period since the start of the Eurozone (1999-2018), the best performing economy of the Eurozone s big 4 has been Spain, despite its travails in the early 2010s. German and French growth averaged just 1.4% whilst Italy s averaged a meagre 0.4%. Greece s average growth has been a disappointing 0.2%. The UK and the US grew more buoyantly than the Eurozone s big 3 in the earlier period, averaging annual growth of around 2¾%. Since the Great Recession, US economic growth has been firmer and more consistent than any of the European economies included in the charts below, but note the UK has shown resilience, despite the depth of the recession. 4

Chart 2a Selected Eurozone countries, UK, US, average annual GDP growth rates (%), 1999-2007, 2007-2018, 1999-2018 5 4 3.7 4 3 2 1 0-1 2.8 2.7 2.1 2.1 1.9 1.8 1.6 1.5 1.6 1.31.4 1.4 1.1 0.9 0.4 0.5 0.2 Germany France Italy -0.4 Spain Greece UK US -2-3 -2.5 1999-2007 2007-2018 1999-2018 Chart 2b Selected Eurozone countries, UK, US, GDP, 2007=100, 2007-2018 120 110 US Germany UK 100 90 France Spain Italy 80 Greece 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 France Italy Spain Greece UK US Source: IMF, World Economic Outlook (October 2018) database, 2018 part estimated. See annex table 4. UK economy update There have been some interesting data over the past fortnight (see annex 5 for updated economic data tracker). 21 The main activity indicator related to December s retail sales, which fell 0.9% (MOM), after the 5

boost to trade in November reflecting Black Friday promotions in that month. 22 The ONS calculated sales declined by a relatively modest 0.2% (QOQ) in 2018Q4, but, even so, this will act as a drag on GDP growth in the quarter. Looking at annual growth rates, retail sales grew by 2.7% (YOY) in 2018 in the quantity bought, compared with 2.0% in 2017 and 4.7% in 2016. The annual inflation rate for consumer prices continued to moderate in December, partly reflecting falling petrol prices. CPIH inflation fell to 2.0% (YOY) in December, whilst CPI inflation fell to 2.1% (YOY). 23 (CPIH is the Consumer Prices Index including owner-occupiers housing costs and is the ONS s preferred measure of consumer prices inflation.) Weaker oil prices exerted a moderating influence on producer prices inflation, with the increase in output prices slipping to 2.5% (YOY) in December, whilst the increase in input prices eased to 3.7% (YOY). 24 The housing market remains subdued. According to official data, UK house prices increased by 2.8% (YOY) in November, little changed from October s 2.7%. 25 The ONS commented that over the past two years, there has been a slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England. The lowest annual growth was in London, where prices fell by 0.7% (YOY). Prices rose a very modest 0.1% (MOM) in November, seasonally adjusted, but fell 0.1% (MOM) non-seasonally adjusted. The labour market remains in remarkably robust health despite signs of slowing economy. Employment rose by 328,000 (YOY) in the three months to November, reflecting a 367,000 increase in full-time jobs only slightly partly offset by a 39,000 fall in part-timers. 26 The unemployment rate was just 4.0% in the same period, with the ONS commenting it has not been lower since the 1970s. Vacancies were over 850,000 in the three months to December (sic), the joint-highest since comparable records began in 2001. Moreover, the tightening labour market is putting upward pressure on the growth of annual average earnings. Earnings were 3.3% higher (YOY) for regular pay and 3.4% higher (YOY) for total pay (including bonuses) in the three months to November. 27 The ONS added that latest estimates show that average weekly earnings for employees in GB in real terms (adjusted for price inflation) increased by 1.1% excluding bonuses, and by 1.2% including bonuses, compared with a year earlier. This pick up in real earnings should help to support consumer spending into 2019. Finally, the ONS released the public finances data for December 2018, which were perhaps a tad disappointing. 28 Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a deficit of 3.0bn in December 2018, compared with a deficit of 2.7bn in December 2017. However, the ONS commented that with the exception of the 2.7bn borrowed in December 2017, this was the lowest December borrowing for 18 years. The PSNB so far for FY2018 (April to December) was 35.9bn, the lowest year-to-date net borrowing for 16 years, compared with 49.0bn for the first nine months of FY2017 (so 13.1bn lower). On a trend basis, borrowing almost certainly continues to decline. The OBR forecast public borrowing of 25.5bn for FY2018 for the Autumn (October 2018) Budget, compared with 41.9bn in FY2017 (so 16.4bn lower) and, incidentally, 44.9bn in FY2016. But the OBR s forecast is looking a tad optimistic. If the OBR s forecast is to be met, (negative) borrowing for the remaining 3 months of FY2018 (January to March 2019) will have to be 3.3bn larger than in the equivalent 3 months for FY2017 (chart 3), which does look optimistic. 6

Chart 3 Public Sector Net Borrowing (PSNB), FY2018 compared with FY2017 ( bn) 60 50 40 41.9 49 35.9 30 25.5 20 10 0-10 -20 Full year Apr-Dec Implied Jan-Mar -3.3-7.1-13.1-10.4-16.4 FY2017 (full year, ONS) FY2018 (full year, OBR) FY2018-FY2017 Sources: (i) ONS, Public sector finances, UK: December 2018, 22 January 2019; (ii) OBR, Economic and fiscal outlook, October 2018, for the forecast for FY2018. See annex table 6. Brexit update Brexit events over the past fortnight have included: The meaningful vote on the Withdrawal Agreement in the House of Commons, postponed from December, occurred on 15 January,. The Government lost the vote by 432 to 202. 29 A no confidence vote in the Government called by the opposition leader was lost by 325 to 306 on 16 January. 30 The Prime Minister made a statement to the Commons on her further plans concerning the Withdrawal Agreement on 21 January. She said she would have further discussions with Northern Ireland s DUP and others on their concerns about the Irish backstop. And then she would take the conclusions of these discussions back to the EU. 31 A second vote on the Withdrawal Agreement is scheduled for 29 January. 32 The Trade Bill is going through the House of Lords (Committee stage). 33 7

References 1. Ruth Lea, The world economy is slowing and growth forecasts are revised down, Arbuthnot Banking Group, 3 December 2018, discussed world growth forecasts from the IMF, the OECD and the European Commission. 2. IMF, World Economic Outlook, January 2019 update, A Weakening Global Expansion, January 2019. 3. Ruth Lea, US monetary policy tightens as global growth moderates, Arbuthnot Banking Group, 2 January 2019, discussed the US-China trade tensions. 4. BBC, US jobs growth jumps in December, 4 January 2019. Employment rose 312,000 jobs, far ahead of predictions of 177,000. 5. Roger Bootle, Germany flirts with recession, but Italy and France will bear the brunt, Daily Telegraph, 14 January 2019. 6. Eurostat, GDP and employment both up by 0.2% in the euro area, 7 December 2018. 7. Daily Telegraph, Germany narrowly avoids recession as economy loses momentum, 16 January 2019. 8. Daily Telegraph, ECB takes control of Italian bank Banca Cariage amid recession fears, 3 January 2019, reported that fears over Italian financial system have been renewed after ECB sent in temporary administrators to run Banca Cariage, following the refusal of its shareholders to back an emergency fundraising. Italian banks are large holders of Italian sovereign debt. 9. FT, EU and Italy strike budget agreement to avoid fines, 19 December 2018. The Italian government agreed to a lower the projected budget deficit for 2019 from 2.4% to 2.04%. The narrower deficit was mainly achieved by delaying some spending measures, including the planned introduction of a basic income programme. 10. BBC, Italy budget: Parliament passes budget after EU standoff, 29 December 2018. The Commission has said it will watch closely to ensure the budget agreement is adhered to. The threat of disciplinary action remains if it is not. 11. Independent, IMF says no deal Brexit to cause 8% hit to UK economy, 14 November 2018. 12. CNBC, China s economy grew 6.6% in 2018, the lowest pace in 28 years, 21 January 2019. 13. ECB, Press conference, President Mario Draghi, 24 January 2019. 14. BBC, Eurozone s economic outlook darkens as growth risks increase, 24 January 2019. 15. Ruth Lea, The ECB ends QE despite a slowing Eurozone economy, Arbuthnot Banking Group, 17 December 2019. 16. Ruth Lea, The Eurozone: solid popular support despite the problems, Arbuthnot Banking Group, 25 June 2018, discussed banks holdings of sovereign debt. 17. ECB, TARGET balances of participating NCBs, ECB website. TARGET stands for Trans- European Automated Real-time Gross Settlement Express Transfer System. Ruth Lea, The Eurozone: convergence remains elusive as one size fits all policies don t fit all, Arbuthnot Banking Group, 4 June 2018, discussed TARGET. 18. Eurostat, Industrial production down by 1.7% in euro area, 14 January 2019. 19. Focus-Economics, Germany: Industrial production contracts in November as worries over a technical recession grow, 8 January 2019. 20. Ruth Lea, The Eurozone: convergence remains elusive as one size fits all policies don t fit all, Arbuthnot Banking Group, 4 June 2018, previously discussed the poor economic performance of the Eurozone since 2007. 21. Ruth Lea, UK economic structural changes: a longer-term perspective, Arbuthnot Banking Group, 14 January 2019, for last UK economic update. 22. ONS, Retail sales, GB: December 2018, 18 January 2019. 23. ONS, Consumer price inflation, UK: December 2018, 16 January 2019. 8

24. ONS, Producer price inflation, UK: December 2018, 16 January 2019. 25. ONS, UK house price index: November 2018, 16 January 2019. The UK s four countries showed different inflation rates: England (2.6% (YOY)), Wales (5.5%), Scotland (2.9%) and Northern Ireland (4.8% (2018Q3)). In England, there was, as always, a significant range across the regions: West Midlands (4.6%), East Midlands (4.4%), South West (4.3%), North East (4.0%), North West (3.1%), East (2.6%), Yorkshire & Humberside (2.0%), South East (1.1%), and London (-0.7%). 26. ONS, UK labour market: January 2019, 22 January 2019. 27. ONS, UK labour market: January 2019, 22 January 2019. 28. ONS, Public sector finances, UK: December 2018, 22 January 2019. 29. BBC, Brexit: Theresa May s deal is voted down in historic Commons defeat, 15 January 2019. 30. BBC, May s government survives no-confidence vote, 16 January 2019. 31. BBC, Brexit: Theresa May scraps 65 fee for EU citizens, 21 January 2019. 32. BBC, Brexit: MPs put forward rival plans to May s deal, 22 January 2019. 33. Parliamentary website. www.parliament.uk. 9

Annex Table 1 IMF GDP forecasts, growth rates (%), last 3 forecasts World output (GDP) Jan 2019, update (changes from Oct, in brackets) Oct 2018, forecast Jul 2018, update 2018 2019 2020 2018 2019 2018 2019 3.7 (0) 3.5 (-0.2) 3.6 3.7 3.7 3.9 3.9 Advanced economies: US (G7) 2.9 (0) 2.5 (0) 1.8 (0) 2.9 2.5 2.9 2.7 Eurozone, of 1.8 (-0.2) 1.6 (-0.3) 1.7 2.0 1.9 2.2 1.9 which: Germany (G7) 1.5 (-0.4) 1.3 (-0.6) 1.6 1.9 1.9 2.2 2.1 France (G7) 1.5 (-0.1) 1.5 (-0.1) 1.6 1.6 1.6 1.8 1.7 Italy (G7) 1.0 (-0.2) 0.6 (-0.4) 0.9 1.2 1.0 1.5 1.2 Japan (G7) 0.9 (-0.2) 1.1 (0.2) 0.5 1.1 0.9 1.0 0.9 UK (G7) 1.4 (0) 1.5 (0) 1.6 1.4 1.5 1.4 1.5 Canada (G7) 2.1 (0) 1.9 (-0.1) 1.9 2.1 2.0 2.1 2.0 Emerging market & developing economies: China 6.6 (0) 6.2 (0) 6.2 6.6 6.2 6.6 6.4 India 7.3 (0) 7.5 (0.1) 7.7 7.3 7.4 7.3 7.5 Brazil 1.3 (-0.1) 2.5 (0.1) 2.2 1.4 2.4 1.8 2.5 Russia 1.7 (0) 1.6 (-0.2) 1.7 1.7 1.8 1.7 1.5 Sources: (i) IMF, World Economic Outlook, July 2018 update, Less even expansion, rising trade tensions; (ii) IMF, World Economic Outlook, October 2018 forecast, Challenges to steady growth ; (iii) IMF, World Economic Outlook, January 2019 update, A Weakening Global Expansion. There are four forecasts a year: Jan update, April forecast, July update, October forecast. Table 2 Central Bank watch Central Bank Bank of England (BoE). Monetary policy committee Monetary Policy Committee (MPC) sets monetary Monetary policy meetings for 2019 Announcements: 7 Feb; 21 March; 2 May; 20 June; 1 Aug; 19 Sep; Recent monetary policy history Bank Rate (base rate): interest rate BoE charges commercial banks for secured 0.5% (5/3/09); 0.25% (4/8/16); 0.5% (2/11/17); 0.75% (2/8/18) 10

policy, including Bank Rate The Inflation Report is released in Feb, May, Aug and Nov. 7 Nov; 19 Dec. overnight lending. European Central Bank (ECB). Governing Council sets monetary policy, including 3 key interest rates. Forecasts: (i) by ECB staff members (Mar, Sep); (ii) by Eurozone national central banks & ECB staff members (Jun, Dec). Announcements: 24 Jan; 7 March; 10 April; 6 June; 25 July; 12 Sep; 24 Oct; 12 Dec. Main refinancing operations (MRO) interest rate, which provide the bulk of liquidity to the banking system Deposit facility rate, which banks may use to make overnight deposits with Eurosystem [comprises ECB & 19 central banks of Eurozone members] Marginal lending facility (MLR) rate, which offers overnight credit to banks from Eurosystem Non-standard monetary policy measures: net purchases under asset purchase programme (APP): Until end-sep 2018: monthly pace of 30bn. Oct-Dec 2018: monthly pace cut to 15bn. After Dec 2018: no net purchases. 0.0% (16/3/16) -0.40% (16/3/16) 0.25% (16/3/16) Federal Reserve System (Federal Reserve, the Fed). Federal Open Market Committee (FOMC) sets monetary policy, by targeting the 29-30 Jan; 19-20 March; 30 April-1 May; 18-19 June; 30-31 July; 17-18 Sep; 29-30 Oct; Federal funds rate: rate banks charge each other for overnight loans of federal funds (reserves held by banks at the Fed), set by the market. Note the 0-0.25% (16/12/08); 0.25-0.50% (17/12/15); 0.50-0.25% (14/12/16); 0.75-1.00% 11

federal funds rate. March, June, Sep, Dec meetings with Summary of Economic Projections & press conference 10-11 Dec. discount rate is the rate for discount window lending (overnight loans member banks borrow directly from the Fed). Fed s end-year projections for the federal funds rate (Dec 2018) (15/3/17); 1.00-1.25% (14/6/17); 1.25-1.50% (13/12/17); 1.50-1.75% (21/3/18); 1.75-2.00% (13/6/18); 2.00-2.25% (26/9/18); 2.25-2.50% (19/12/18) 2018 (2.4% (2.25%- 2.5%)); 2019 (2.9% (2.75%- 3.0%)); 2020 (3.1% (3.0%- 3.25%)); 2021 (3.1%); Longer-run (2.8%) Sources: (i) Bank of England website; (ii) ECB website; (iii) Federal Reserve System website. Table 3 Membership of the Eurozone (EU19) Date 1 January 1999 France, Germany, Italy, Spain, Netherlands, Belgium, Austria, Finland, Portugal, Ireland, Luxembourg (11 in all) 1 January 2001 Greece (12 th ) 1 January 2002 Physical notes & coins introduced 1 January 2007 Slovenia (13 th ) 1 January 2008 Malta, Cyprus (14 th, 15 th ) 1 January 2009 Slovakia (16 th ) 1 January 2011 Estonia (17 th ) 1 January 2014 Latvia (18 th ) 1 January 2015 Lithuania (19 th ) Table 4 Selected Eurozone countries, UK, US, GDP, 1999-2018 Germany ( bn) GDP ratios (annual average growth in brackets (%)) 1999 2007 2018 2007/1999 2018/2007 2018/1999 2,280.7 2,596.0 2,985.4 1.14 (1.6%) 1.15 (1.3%) 1.31 (1.4%) 12

France ( bn) 1,754.9 2,080.4 2,283.7 1.185 1.10 (0.9%) 1.30 (1.4%) (2.1%) Italy ( bn) 1,499.9 1,687.1 1,613.3 1.125 0.95 (-0.4%) 1.075 (0.4%) (1.5%) Spain ( bn) 826.2 1,108.4 1,170.2 1.34 (3.7%) 1.055 1.415 (1.9%) (0.5%) Greece ( bn) 182.7 250.7 190.9 1.37 (4.0%) 0.76 (-2.5%) 1.045 (0.2%) UK ( bn) 1,437.3 1,798.1 2029.4 1.25 (2.8%) 1.13 (1.1%) 1.41 (1.8%) US ($bn) 12,610.5 15,626.0 18,571.3 1.24 (2.7%) 1.19 (1.6%) 1.47 (2.1%) Source: IMF, World Economic Outlook (October 2018) database, 2018 part forecast. Table 5 UK economic data tracker Date Release Source Quarter, year 21 Dec Current Account, Balance of Payments (2018Q3) Outcome ONS 2018Q3 Deficit: 26.5bn (4.9% of GDP, 2018Q3), 20.0bn (3.8% of GDP, 2018Q2) 21 Dec Trade (goods & services) balance ONS 2018Q3 Deficit: 8.8bn (2018Q3), 7.0bn (2018Q2). 21 Dec Trade (goods & services) ONS 2018Q3 Current prices (2018Q3): exports: +1.2% (QOQ); imports: +2.2% (QOQ) 21 Dec Visible trade balance ONS 2018Q3 Deficit: 35.0bn (2018Q3), 34.6bn (2018Q2) 21 Dec Services balance ONS 2018Q3 Surplus: 26.2bn (2018Q3), 27.6bn (2018Q2) 21 Dec Primary income balance ONS 2018Q3 Deficit: 11.1bn (2018Q3), 7.5bn (2018Q2) 21 Dec Secondary income ONS 2018Q3 Deficit: 6.6bn (2018Q3), 5.5bn (2018Q2) balance 21 Dec GDP (2018Q3) ONS 2018Q3 +0.6% (QOQ), 1.5% (YOY) 21 Dec GDP: output breakdown (2018Q3) ONS 2018Q3 Services: +0.5% (QOQ). Industrial production: +0.6% (QOQ); within which manufacturing +0.4% (QOQ). Construction: +2.3% (QOQ) 21 Dec GDP: expenditure breakdown (2018Q3) ONS 2018Q3 Household consumption: +0.5% (QOQ). GGFC: -0.3% (QOQ). GFCF: +0.5% (QOQ), within which business investment -1.1% (QOQ). Net contribution of net trade: +0.1% points (QOQ); exports +1.1% (QOQ), imports +0.8% (QOQ) 21 Dec Car production (Nov) SMMT 2018Q4 Nov: total (-19.6% (YOY)); home (-1.9% 21 Dec Car production (2018, YTD) (YOY)), export (-22.8% (YOY)) SMMT 2018 Jan-Nov: total (-8.2% (YOY)); home (-16.8% (YOY)), export (-6.0% (YOY)) 13

2 Jan Manufacturing PMI Markit- 2018Q4 Index: 54.2 (Dec), 53.6 (Nov) (Dec) CIPS 3 Jan Construction PMI (Dec) Markit- 2018Q4 Index: 52.8 (Dec), 53.4 (Nov) CIPS 4 Jan Services PMI (Dec) Markit- 2018Q4 Index: 51.2 (Dec), 50.4 (Nov) CIPS 4 Jan Unsecured credit (Nov) BoE 2018Q4 Growth rate (YOY): 7.1% (Nov), 7.4% (Oct) 4 Jan Secured on dwellings BoE 2018Q4 Growth rate (YOY): 3.2% (Nov), 3.3% (Oct) (Nov) 4 Jan Mortgage approvals for house purchase (Nov) BoE 2018Q4 63,726 (Nov), 66,709 (Oct), compared with 65,731(average of previous 6 months) 4 Jan Net bank lending to non-financial businesses (Nov), of which: BoE 2018Q4 Growth rate (YOY): 2.6% (Nov), 1.5% (Oct) 4 Jan Large businesses BoE 2018Q4 Growth rate (YOY): 4.2% (Nov), 2.5% (Oct) 4 Jan SMEs BoE 2018Q4 Growth rate (YOY): -0.1% (Nov), -0.2% (Oct) 7 Jan New car registrations (Dec) SMMT 2018Q4 Nov: total (-5.5% (YOY)), of which diesel (-26.3% (YOY)) 7 Jan New car registrations (Jan-Dec) SMMT 2018 Jan-Dec: total (-6.8% (YOY)), of which diesel (-29.6% (YOY)) 9 Jan Productivity (output per ONS 2018Q3-0.4% (QOQ), +0.2% (YOY) hour) (2018Q3) 9 Jan Productivity (output per ONS 2018Q3 +0.5% (QOQ), +0.4% (YOY) worker) (2018Q3) 11 Jan GDP (3 months to Nov) ONS 2018Q4 GDP: 0.3% (QOQ), 1.5% (YOY) 11 Jan GDP: industrial breakdown (3 months to Nov) ONS 2018Q4 Production: -0.8% (QOQ), -0.9% (YOY); Manufacturing output: -0.8% (QOQ), -0.4% (YOY); Construction: 2.1% (QOQ), 3.3% (YOY); Services: 0.3% (QOQ), 1.8% (YOY) 11 Jan GDP, monthly (Nov) ONS 2018Q4 GDP (Nov): 0.2% (MOM), 1.4% (YOY) 11 Jan GDP: industrial breakdown (Nov) 11 Jan UK trade in goods & services (3 months to Nov) 11 Jan UK trade in goods (3 months to Nov) 11 Jan UK trade in services (3 ONS 2018Q4 Production: -0.4% (MOM), -1.5% (YOY); Manufacturing output: -0.3% (MOM), - 1.1% (YOY); Construction: 0.6% (MOM), +3.0% (YOY); Services: 0.3% (MOM), +1.9% (YOY) ONS 2018Q4 Trade deficit: narrowed 0.2bn (QOQ) to 7.9bn ONS 2018Q4 Goods deficit: narrowed 0.1bn (QOQ) to 34.7bn ONS 2018Q4 Services surplus: rose 0.1bn (QOQ) to 26.7bn months to Nov) 11 Jan NIESR GDP tracker NIESR 2018Q4 GDP growth: 0.3% (QOQ) in 2018Q4, 0.4% (QOQ) in 2019Q1. 11 Jan NIESR GDP tracker NIESR 2018 GDP growth: 1.5% (YOY) 16 Jan CPIH (Dec) ONS 2018Q4 YOY inflation: 2.0% (Dec), 2.2% (Nov) 16 Jan CPI (Dec) ONS 2018Q4 YOY inflation: 2.1% (Dec), 2.3% (Nov) 14

16 Jan PPI (output) (Dec) ONS 2018Q4 YOY inflation: 2.5% (Dec), 3.0% (Nov) 16 Jan PPI (input) (Dec) ONS 2018Q4 YOY inflation: 3.7% (Dec), 5.3% (Nov) 16 Jan Crude oil prices (Dec) ONS 2018Q4 YOY inflation (sterling): -9.7% (MOM), 0.4% (YOY) 16 Jan House prices (Nov, ONS 2018Q3 YOY growth: 2.8% (Nov), 2.7% (Oct) official) 16 Jan House prices (Nov, ONS 2018Q3 +0.1% (MOM, seasonally adjusted) official) 18 Jan Retail sales (Dec) ONS 2018Q4 Volume: -0.9% (MOM), 3.0% (YOY) 18 Jan Retail sales (3 months to ONS 2018Q4 Volume: -0.2% (QOQ), 2.9% (YOY) Dec) 22 Jan Employment (3 months ONS 2018Q4 +141k (QOQ), +328k (YOY) to Nov) 22 Jan Unemployment (3 ONS 2018Q4 +8k (QOQ), -68k (YOY) months to Nov) 22 Jan Unemployment rate (3 ONS 2018Q4 4.0%, unchanged (QOQ), 4.2% (YOY) months to Nov) 22 Jan Vacancies (3 months to ONS 2018Q4 Total vacancies: 853k, +10k (QOQ), +39k Dec) 22 Jan Earnings (3 months to Nov), nominal 22 Jan Earnings (3 months to Nov), real 22 Jan Public Sector Net Borrowing (PSNB) (Dec) 22 Jan Public Sector Net Borrowing (PSNB) (FY2018, to date) 22 Jan Public sector finances, public sector net debt (PSND) (Dec) Sources include ONS website. (YOY) ONS 2018Q4 3.3% (YOY, regular pay, excluding bonuses), 3.4% (YOY, total pay, including bonuses) ONS 2018Q4 +1.1% (YOY, regular pay, excluding bonuses), +1.2% (YOY, total pay, including bonuses) ONS 2018Q4 3.0bn deficit (Dec 2018), compared with 2.7bn deficit (Dec 2017). ONS FY2018 35.9bn deficit (Apr-Dec 2018), compared with 49.0bn deficit (Apr-Dec 2017). ONS 2018Q4 1,808.9bn (end-dec 2018, 84.0% of GDP), compared with 1,760.3bn (end-dec 2017, 84.5% of GDP) Table 6 Public Sector Net Borrowing (PSNB), FY2018 compared with FY2017 ( bn) Full year Apr-Dec Implied Jan-Mar FY2017 41.9 (ONS) 49.0-7.1 FY2018 25.5 (OBR) 35.9-10.4 Change -16.4-13.1-3.3 Source: ONS, Public sector finances, UK: December 2018, 22 January 2019. 15