PERSPECTIVES - Arbuthnot Banking Group
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PERSPECTIVES
By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group
The UK economy in 2020: Ruth Lea
Economic Adviser
another year of modest growth Arbuthnot Banking Group
ruthlea@arbuthnot.co.uk
07800 608 674
30th December 2019
Introduction
The recently released GDP data for 2019Q3, which showed a marginal upward growth revision
(discussed below), were modestly encouraging. But this “good news” should not distract from the
fact that October’s GDP data were disappointing and suggested growth of the underlying economy
was continuing to decelerate.1-2 Having said that, there still seems to be growth, which should be
helped by an expected fiscal boost next year in the Budget (February or March). In addition, the
economy should also be supported by signs of increasing clarification on Brexit (see below for the
latest developments). As we discussed in November, the economy has been facing the twin
headwinds of Brexit uncertainty, which has almost certainly depressed business investment and
could also have undermined the consumer, and the weaker global economy, especially in the
Eurozone.3
Given this background, and as we enter 2020, it is a salutary exercise to take stock the latest UK
growth forecasts from the major official forecasting institutions:
The IMF’s October outlook.4-5
The Bank of England’s November assessment.6-7
The European Commission’s November (Autumn) forecast.8-9
The OECD’s November outlook.10-11
Chart 1 shows the GDP forecasts for 2019-2021 (2019-2020 for the IMF). Given that GDP growth is
expected to be around 1.3% in 2019, as a group they tend, if anything, to verge on the cautious
side. Putting that aside, however, these institutions, allowing for “headwinds”, expect growth in
2020 (on average) to be very similar to 2019. This seems reasonable. A central case projection,
therefore, suggests growth of 1.3% for 2020 (see annex table 1 for illustrative data).
1Chart 1 UK GDP growth, forecasts: 2019, 2020, 2021
2
1.75
1.5 1.4 1.4 1.4
1.25 1.25 1.3
1.2 1.2 1.2
1
1
0.5
0
IMF Bank of England European Commission OECD
2019 2020 2021
Sources: (i) IMF, “World Economic Outlook”, 15 October 2019 (no figure for 2021); (ii) Bank of
England, Monetary Policy Report, 7 November 2019; (iii) European Commission, “Autumn 2019
economic forecast, 7 November 2019; (iv) OECD, “Economic Outlook”, 21 November 2019.
Latest UK data: GDP for 2019Q3 revised up…
There has been the usual mid-month deluge of data over the last fortnight (see annex 2 for the
data tracker).12
GDP growth was revised up to 0.4% (QOQ) for 2019Q3, compared with the first estimate of 0.3%
(QOQ). It was 1.1% higher (YOY, revised from 1.0%).13 This followed GDP changes of -0.2% (QOQ)
for 2019Q2 and +0.6% (QOQ) for 2019Q1. The ONS noted that increase for 2019Q3 “…follows
volatility in the first half of the year, which largely reflected changes in the timing of activity
related to the UK’s original planned exit date from the EU in late March. The underlying
momentum in the UK economy continued to show some signs of slowing”. The ONS also revised
the back data. GDP is now estimated to have increased by 1.3% (YOY) in 2018, revised downwards
from the previous estimate of 1.4% and slowing from the 1.9% (YOY) growth seen in 2017.
Starting with the industrial breakdown for GDP, chart 2 shows the contributions to growth for the
main industrial groups since 2018Q1. The services sector was clearly by far the largest contributor
to growth in 2019Q3, but construction and production also contributed positively (albeit
modestly) to growth.
In terms of actual growth:
Services output increased by 0.5% (QOQ, revised up) in 2019Q3, following the weakest
quarterly figure in three years in 2019Q2 (just 0.2% growth).
Production output increased 0.1% (QOQ), within which manufacturing also increased by 0.1%.
Production fell 1.7% in 2019Q2.
Construction output increased by 1.2% (QOQ), following a weak 2019Q2 (when it fell 1.0%).
2Chart 2 Output-based GDP: contributions to growth (%)
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
-0.1 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3
-0.2
-0.3
Industrial production Construction Services GDP
Source: ONS, “GDP quarterly national accounts: 2019Q3”, 20 December 2019. Rounding errors.
Turning to the expenditure components, household consumption and net trade contributed
positively in 2019Q3, while gross capital formation (GCF) and government expenditure
contributed negatively to GDP growth. Specifically:
Household consumption increased by 0.3% (QOQ) in 2019Q3, with growth broadly in line with
the recent relatively subdued trend.
Government consumption fell by a revised 0.6% in 2019Q3, partly driven by lower public
administration.
Gross capital formation (GCF) is a composite component, comprising gross fixed capital
formation (GFCF, fixed investment), changes in inventories, and net acquisitions of valuables.
Within GFC, GFCF increased by 0.2% (QOQ) in 2019Q3, whilst the latest estimates show that
business investment was flat in this quarter, continuing its recent subdued performance. Also
within GFC, stocks were run down in 2019Q3 as well as 2019Q2, after the build-up in 2019Q1
ahead of the original Brexit Day.
Net trade was estimated to have made a larger positive contribution than previously estimated
in 2019Q3, reflecting a more pronounced narrowing of the estimated trade deficit. The UK
trade deficit (goods and services) narrowed to 0.1% of nominal GDP in 2019Q3, compared with
the previous estimate of 1.2%. As a percentage of GDP, this is the lowest trade deficit since
1997Q4. In volume terms, exports rose 7.9% (QOQ), whilst imports fell 0.3%.
Chart 3 shows the contributions to growth of the main expenditure components. From chart 3 it is
clear that there have been very large movements in two of the major components in recent
quarters, firstly, between 2018Q4 and 2019Q1 and, secondly, between 2019Q1 and 2019Q2. The
first movement relates to total gross capital formation (GFC, grey bars), including changes in
inventories (yellow bars), which made a very large contribution to growth in 2019Q1 but dragged
GDP down significantly in 2019Q2. The second movement relates to external trade (blue bars),
which worked in the opposite direction. In 2019Q3 inventories (within GFC) continued to act as a
drag on growth, whilst there was another major contribution to growth from net trade.
3Chart 3 Expenditure-based GDP: contributions to growth (%), 2018Q1-2019Q2
4
GFC
3 Net trade
2 Inventories
1
0
2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3
-1
-2
Inventories
-3
Net trade
GFC
-4
Household & NPISH General Government FC Gross capital formation
Of which: changes in inventories Net trade GDP
Source: ONS, “GDP quarterly national accounts: 2019Q3”, 20 December 2019. Rounding errors.
GFC (Gross Capital Formation)=GFCF (fixed investment)+changes in inventories+net acquisitions of
valuables.
…as the balance of payments improved in 2019Q3
As already noted, the trade balance improved significantly in 2019Q3, which was reflected in the
improved total current account data. The current account deficit narrowed to £15.9bn (2.8% of
GDP) in 2019Q3, compared with £24.2bn (4.4%% of GDP) in 2019Q2, an improvement of
£8.3bn.14-15 The deficit in 2019Q3 was the lowest in percentage terms since 2012Q1 when a deficit
equivalent to 2.6% GDP was recorded. The large narrowing to the current account deficit was
primarily because of the, already noted, substantial narrowing to the total trade (goods and
services) deficit. The goods deficit fell by £5.4bn, whilst the services surplus increased by £5.1bn.
However, the primary income (mainly investment income) deficit worsened to £8.7bn in 2019Q3,
compared with £6.4bn in 2019Q2. The ONS reported the increased deficit reflected a decrease in
UK earnings on foreign investments and increased payments to foreign investors on their UK
investments. Finally, the secondary account (current transfers) deficit was little changed at £6.8bn.
November’s retail sales were disappointing…
There are still few activity indicators for 2019Q4, but retail sales data are now available up to
November.16 Sales fell a disappointing 0.6% (MOM) in the month of November, to be only 1.0%
higher YOY. The ONS reported “…this is the lowest (YOY) growth since April 2018, owing to a
decline of 1.1% in non-food stores.”
4However, the ONS noted that the official “Black Friday” in 2019 was on 29 November and outside
their November reporting period (which covered four weeks from 27 October to 23 November).
Whilst they added that their seasonally adjusted estimates had “accounted for this shift in timing”,
it is possible (probable?) that their seasonal factors have not adequately adjusted for the impact
of the “shift in timing” of Black Friday on this year’s November data. If so November’s data would
be distorted and December’s could be better.
…and the Bank’s latest Agents business survey was subdued
The Bank of England’s latest “Agents’ summary of business conditions” (December release,
surveys in October and November) was fairly subdued, with business beset by political
uncertainty.17
The Bank concluded that growth in consumption was muted, particularly in services, whilst sales
of big-ticket household goods and new cars remained weak. Growth in business services had
weakened, with uncertainty about Brexit and the General Election weighing on activity.
Manufacturing output fell, reflecting weaker domestic and global demand, with Brexit uncertainty
and subdued investment continuing to depress output. Construction output contracted slightly,
with uncertainty leading to delays in infrastructure, commercial and residential projects.
Investment intentions remained depressed by slower global growth and political uncertainty.
Finally, the Bank noted that input price inflation had slowed, and consumer price inflation had
eased, with margins becoming more squeezed reflecting higher labour costs.
In addition to their usual summary of business conditions, the Agents also surveyed businesses on
their preparations for EU withdrawal.18 The survey was run after the extension of the EU
withdrawal deadline to 31 January 2020 had been announced. The main finding was that almost
all respondents said they were either ‘fully ready’ or ‘as ready as can be’ for a no-deal Brexit. This
was similar to the October survey. The contingency actions most commonly reported by
companies in preparation for EU withdrawal were stock-building, engaging with customers to
manage risks and applying for the necessary certifications
The labour market remains fairly robust…
Despite the economic uncertainty, the labour market remains fairly resilient, though employment
growth is slowing much in line with the underlying economy. Employment increased in the three
months to October by just 24,000 higher QOQ (though over 300,000 higher YOY), whilst
unemployment fell a modest 13,000 (QOQ), to be 93,000 down YOY over the same period. 19-20 The
latest unemployment rate was 3.8%, unchanged from the previous quarter, but still 0.3
percentage points down on a year earlier. It has not been lower since November 1974-January
1975. Job vacancies remain strong, though they have eased since the beginning of 2019. There
were 794,000 job vacancies in the three months to November 2019 (sic), still at near-record levels
since comparable records began in 2001.
The rate of pay growth (annual growth in average weekly earnings for employees in Great Britain)
has tended to trend higher since March-May 2017, reaching 3.9% in the three months to July
2019, the highest nominal pay growth rate since 2008. However, in the three months to October,
5growth dropped to 3.2% for total pay (including bonuses) and to 3.5% regular pay (excluding
bonuses). The annual growth in total pay was, however, weakened by unusually high bonus
payments paid in October 2018 compared with more typical average bonus payments paid in
October 2019. In real terms, reflecting subdued prices inflation, annual pay growth has been
positive since the three months to February 2018 and was 1.5% for total pay and 1.8% for regular
pay in the three months to October. These increases in real earnings, combined with still strong
employment, should sustain household consumption growth in 2020.
Unsurprisingly, the general pick-up in earnings has contributed to the upward pressure on unit
labour costs. The ONS reported that the annual growth in labour costs per hour for employees
across the whole economy increased by 3.8% in 2019Q3.21 Within the total, wage costs per hour
were 4.0% higher (YOY) whilst non-wage costs (such as pensions and National Insurance
contributions) per hour were 2.8% higher (YOY). As the Bank’s Agents summary noted (above),
these higher labour costs may be squeezing profit margins.
…whilst prices inflation remains contained…
The latest reports for both consumer and producer prices inflation suggested inflationary
pressures remain well contained.
The ONS reported that the CPIH inflation rate was unchanged at 1.5% in November. 22 Prior to
October 2019, the previous lowest rate was in November 2016, when inflation was also 1.5%.The
inflation rates for goods and services in October were 0.5% (0.4% in October) and 2.2%
(unchanged) respectively. The core rate inflation (excluding energy, food, alcoholic beverages &
tobacco) was unchanged at 1.7%. The Consumer Prices Index (CPI) 12-month rate was also
unchanged at 1.5% in November.
Turning to the producer price index (PPI), the inflation rate for the output PPI (goods leaving the
factory gate) was 0.5% (YOY) in November, the lowest rate since July 2016, down from October’s
0.8%. Moreover, the inflation rate for the input PPI (materials and fuels used in the manufacturing
process) remained in negative territory in November, registering a YOY fall of 2.7%. Imported
materials and fuels in November benefited from a modest appreciation of sterling. The sterling
effective exchange rate index (ERI) rose 1.7% (MOM) in November.
…and the housing market remains subdued
According to official data, UK average house prices inflation in October was 0.7% (YOY), the lowest
rate since September 2012, down from 1.3% in September.23 The ONS commented “…over the
past three years, there has been a general 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 1.6% (YOY) in October. This was followed by the North East, where prices fell by 1.1%
(YOY)”. Prices fell 0.7% (MOM) on a non-seasonally adjusted basis in October, and were down
0.4% (MOM) on a seasonally adjusted basis.
6The OBR’s restates its March 2019 public finances forecast…
The Office of Budget Responsibility (OBR) recently published their technical restatement of their
March 2019 forecast, on a consistent basis with the latest official public finances data produced by
the ONS.24-26 As noted previously, the ONS has made significant revisions to the public finances
data since March 2019, not least of all to the treatment of student loans.27-28 The OBR’s
restatement provides a consistent baseline against which it will be possible to consider the
implications of recent developments in the economy and public finances, plus the impact of new
policy decisions, for the next Budget.
The changes are shown in table 1 for both public sector net borrowing (PSNB) and public sector
net debt (PSND). The OBR’s restated forecast for the PSNB shows materially higher deficits across
the forecast period. The changes are dominated by the new ONS treatment of student loans,
which increases spending and lowers receipts. Concerning the PSND, the OBR explained “…PSND is
largely a cash measure, so it has been affected by few of the statistical changes. Our restated
March forecast starts lower, thanks largely to the gilts held by funded pension schemes, which
now net off within the public sector. It then rises more quickly in cash terms than in our original
forecast as the cumulative effect of lower corporation tax receipts builds.”
Table 1 PSNB, PSND, restated March 2019 forecast, £bn
FY2019 FY2019 FY2020 FY2021 FY2022 FY2023
PSNB:
March forecast 22.8 29.3 21.2 17.6 14.4 13.5
Restated forecast 41.0 47.6 40.2 37.6 35.4 33.3
Change, of which: 18.1 18.3 19.1 20.0 21.0 19.9
Student loans (all) 12.4 13.4 14.1 14.9 15.8 14.4
Funded PS pensions 1.3 0.7 0.7 0.7 0.7 0.7
schemes
Corporation tax correction 4.4 4.2 4.3 4.4 4.6 4.8
PSND:
March forecast 1803 1838 1828 1796 1838 1878
Restated forecast 1779 1817 1810 1781 1827 1870
Change, of which: -24.2 -21.2 -18.1 -15.0 -11.8 -8.4
Funded PS pensions -28.6 -29.8 -31.1 -32.4 -33.7 -35.2
schemes
Corporation tax correction 4.4 8.6 13.0 17.4 22.0 26.8
Source: OBR, “Restated March 2019 forecast, November 2019”, 16 December 2019.
7…whilst borrowing is running ahead of last year
Public sector net borrowing (PSNB-ex, excluding public sector banks) was £5.6bn in November
2019, compared with £5.3bn in November 2018, a modest deterioration of £0.2bn. 30 Cumulative
borrowing in the current financial year-to-date (April-November 2019, FY2019) was £50.9bn,
compared with £45.7bn in the same period last year (April-November 2018, FY2018), a
deterioration of £5.1bn. This was the highest April-November borrowing increase for two years
(since 2017). Borrowing is clearly running ahead of the equivalent data of FY2018.
Chart 4 (and annex table 3) shows the data for full years FY2018 (ONS outturn, £38.1bn) and
FY2019 (the OBR’s restated forecast, £47.6bn), alongside the recorded data for the first 8 months
of FY2018 and FY2019 (March-November). As can be seem from chart 4, the OBR’s forecast for full
year FY2019 is some £9.5bn higher than the ONS’s current outturn for FY2018, whereas the PSNB
is “only” £5.1bn higher for the first 8 months of FY2019 compared with the first 8 months of
FY2018. The increase in borrowing is, therefore, rising at a slower rate than the OBR’s forecast so
far in FY2019.31
Finally, Public Sector Net Debt (excluding public sector banks, PSND ex) was £1,808.8bn at the end
of November 2019 (80.6% of GDP), compared with £1,769.4bn (81.4% of GDP) at end-November
2018. The debt/GDP ratio has been ticking up since August 2019.
Chart 4 Public Sector Net Borrowing (PSNB), FY2019 compared with FY2018 (£bn)
60
50.9
50 47.6 45.7
38.1
40
30
20
9.5
10 5.2 4.3
0
Full year (FY2018(ONS),FY2019(OBR)) Apr-Nov Dec-Mar (FY2019, implied)
-10 -3.3
-7.6
-20
FY2018 FY2019 FY2019-FY2018
Sources: (i) OBR, “Restated March 2019 forecast, November 2019”, 16 December 2019; (ii) ONS,
“Public sector finances: November 2019”, 20 December 2019, see annex table 3.
8At its meeting ending on 18 December 2019, the Bank’s Monetary Policy Committee (MPC) voted
by a majority of 7-2 to maintain Bank Rate at 0.75%, much as expected.32 Two members (Jonathan
Haskel and Michael Saunders) voted for a cut to 0.5%. In addition, the Committee voted
unanimously, firstly, to maintain the stock of sterling non-financial investment-grade corporate
bond purchases, financed by the issuance of central bank reserves, at £10bn and, secondly, to
maintain the stock of UK government bond purchases, financed by the issuance of central bank
reserves, at £435bn. It should be noted that the MPC met after the 12 December General Election,
the re-election of a Conservative Government and the near-certainty that the UK would leave the
EU on 31 January 2019.
Concerning the economy and the possible path of interest rates, the most interesting comments in
the minutes were:
“Taking the latest official data and business surveys together, Bank staff expected GDP growth
of 0.1% in 2019Q4, slightly weaker than the MPC had expected in the November Report”
(0.2%).
“Monetary policy could respond in either direction to changes in the economic outlook in
order to ensure a sustainable return of inflation to the 2% target.”
“If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary
policy might need to reinforce the expected recovery in UK GDP growth and inflation.” In other
words, monetary policy may need to be loosened.
“Further ahead, provided these risks did not materialise and the economy recovered broadly
in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace
and to a limited extent, might be needed to maintain inflation sustainably at the target.” In
other words, monetary policy may need to be tightened.
Despite the fact that two MPC members voted for a cut in the Bank Rate in December, our central
case expectation is that monetary policy will be unchanged over the next 6-12 months.
…and a new Governor
The Chancellor announced Andrew Baily as the successor to Bank of England Governor Mark
Carney, as from 16 March 2020, on 20 December.33 In order to provide for a smooth transition
Mark Carney agreed to complete his term on 15 March 2020. Mr Bailey joined the Bank of England
in 1985 and has been the CEO of the Financial Conduct Authority (FCA) since July 2016.
Political developments; the Queen’s Speech…
Parliament reconvened on 17 December after the recent General Election and the State Opening
of Parliament was on 19 December (see annex table 4 for recent political developments).
The Queen’s Speech on 19 December was the second in less than three months, the previous one
having been given on 14 October.34 The key points to note were (see also annex table 5):35-36
The Government’s priority was to “Get Brexit Done” by 31 January 2020. There were over 30
bills proposed in the Speech, of which seven concerned Brexit. These seven Bills covered
legislation on the Withdrawal Agreement, trade, agriculture, fisheries, immigration, financial
services and private international law. The EU (Withdrawal Agreement) Bill (WAB) is discussed
9further below. The Government also announced (on 19 December) the proposed closure of
the Department for Exiting the EU (DExEU).37
There were also Bills for “supporting the public services” (including the NHS, another priority),
“supporting workers and families” (including an Employment Bill) and “strengthening the
Justice System”.
There were also sections on “infrastructure, investment and devolution”, “protecting the
environment and improving animal welfare” and “strengthening the Union and Constitution.”
Finally, “other measures” included policy statements on the Armed Forces and the public
finances.
On the public finances, the “background briefing notes” to the Queen’s Speech noted that “…the
Government has set out a clear set of rules to anchor our fiscal policy and keep borrowing and
debt under control”.38 These fiscal rules, which will presumably feature in the upcoming Budget,
were:
To have the current budget in balance no later than the third year of the forecast period;
To limit public sector net investment to an average of 3% of GDP;
To reassess plans in the event of a pronounced rise in interest rates taking interest costs above
6% of government revenue.
…and the EU (Withdrawal Agreement) Bill
The revised EU (Withdrawal Agreement) Bill (WAB) was introduced to the Commons and given
its First Reading on 19 December 2019. (The First Reading stage is formal and takes place without
any debate.) The Bill was then given its Second Reading on 20 December 2019, when it was
approved by the Commons by 358 to 234 (majority of 124).39
The WAB was initially published on 21 October 2019 and, compared with the October version, the
December version:40
Legally prohibits the extension of the transition period beyond 31 December 2020.
Extends UK courts ability to reconsider ECJ rulings that have been retained in UK law after
Brexit
Requires ministers to report annually to Parliament on disputes with the EU under the
Withdrawal Agreement.
Repeals spent legislation that “now serves no purpose”, including the Cooper Act and the Benn
Act.41-42
Removes a previous clause on strengthening workers’ rights. Separate legislation will deal with
such issues.
In addition, the PM clarified on 20 December that, in any future trade relationship with the EU, the
UK would not be aligning its regulations with the EU’s.43
Parliament rose on 20 December 2019 and will return on 7 January 2020, after the Christmas
break. It is expected that the EU (Withdrawal Agreement) Bill (WAB) will pass through both
Houses in early 2020, ready for ratification by the European Parliament in mid/late January, prior
to Brexit Day of 31 January.
10References
1. ONS, “GDP monthly estimate, UK: October 2019”, 10 December 2019. GDP was flat (MOM) in
October, after falls of 0.2% in August and 0.1% in September. It was just 0.7% (YOY) higher.
2. Ruth Lea, “2019 General Election: the green light for Brexit”, Arbuthnot Banking Group, 16
December 2019.
3. Ruth Lea, “The UK’s slowing economy: facing headwinds”, Arbuthnot Banking Group, 18
November 2019.
4. IMF, World Economic Outlook, October 2019 forecast “Global manufacturing downturn, rising
trade barriers”, 15 October 2019
5. Ruth Lea, “The IMF downgrades global growth again for 2019, slowest pace since the financial
crisis”, Arbuthnot Banking Group, 21 October 2019, discussed the IMF forecast.
6. Bank of England, Monetary Policy Report, 7 November 2019. The Monetary Policy Report has
replaced the Inflation Report.
7. Ruth Lea, “The UK’s slowing economy: facing headwinds”, Arbuthnot Banking Group, 18
November 2019, discussed the Bank’s forecast.
8. European Commission, “Autumn 2019 economic forecast: a challenging road ahead”, 7
November 2019.
9. Ruth Lea, “The 2019 General Election: clear blue water between the two main parties”,
Arbuthnot Banking Group, 2 December 2019, for the Commission forecast.
10. OECD, “Economic Outlook: Weak trade and investment threaten long-term growth”, 21
November 2019.
11. Ruth Lea, “The 2019 General Election: clear blue water between the two main parties”,
Arbuthnot Banking Group, 2 December 2019, for the OECD forecast.
12. Ruth Lea, “2019 General Election: the green light for Brexit”, Arbuthnot Banking Group, 16
December 2019, has the last data tracker.
13. ONS, “GDP quarterly national accounts: 2019Q3”, 20 December 2019.
14. ONS, “Balance of payments: 2019Q3”, 20 December 2019.
15. Ruth Lea, “Balance of payments current account: still running deficits”, Arbuthnot Banking
Group, 7 October 2019, discussed the balance of payments in some detail, including the UK’s
international investment position (IIP).
16. ONS, “Retail sales, GB: November 2019”, 19 December 2019. Online retailing increased to
18.7% of total retailing in November 2019, compared with 19.1% (revised) reported in October
2019.
17. Bank of England, “Agents’ summary of business conditions: 2019Q4”, 19 December 2019. The
survey generally compares activity and prices over the past three months with a year ago.
18. Bank of England, “Agents’ survey on preparations for EU withdrawal: 2019Q4”, 19 December
2019.
19. ONS, “Labour market overview, UK: December 2019”, 17 December 2019 and accompanying
releases.
20. ONS, “Vacancies and jobs in the UK: December 2019”, 17 December 2019.
21. ONS, “Index of labour costs per hour, UK: 2019Q3”, 16 December 2019.
22. ONS, “Consumer price inflation, UK: November 2019”, 18 December 2019. The CPIH is the
Consumer Prices Index including owner-occupiers’ housing costs and is the ONS’s preferred
measure of consumer prices inflation.
23. ONS, “Producer price inflation, UK: November 2019”, 18 December 2019.
24. ONS, “UK house prices index: October 2019”, 18 December 2019. The UK’s four countries
continued to show different YOY inflation rates in September: England (0.5%), Wales (3.3%),
Scotland (1.4%) and Northern Ireland (4.0% (2019Q3)). In England, there was, as always, a
11significant range across the regions: Yorkshire & Humberside (3.2%), North West (1.4%), East
Midlands (1.3%), South West (0.6%), East (0.3%), West Midlands (0.2%), South East (-0.3%)
North East (-1.1%), and London (-1.6%).
25. OBR, “Restated March 2019 forecast, November 2019”, 16 December 2019.
26. OBR, Economic and fiscal outlook, March 2019, for the March forecasts.
27. Note the OBR has also recently released its latest evaluation of their March 2016 (pre-Brexit
vote) and November 2016 (post-Brexit vote) forecasts. OBR, “Forecast Evaluation Report (FER),
December 2019”, 19 December 2019.
28. Ruth Lea, “Fears of recession: overdone in the US but maybe not in Germany”, Arbuthnot
Banking Group, 27 August 2019, first discussed the ONS changes to the public finances.
29. Ruth Lea, “Balance of payments current account: still running deficits”, Arbuthnot Banking
Group, 7 October 2019, also discussed the ONS changes to the public finances (as
implemented from September onwards).
30. ONS, “Public sector finances, UK: November 2019”, 20 December 2019.
31. OBR, “Public sector finances: November 2019”, 20 December 2019.
32. Bank of England, “Monetary Policy Summary and minutes of the Monetary Policy Committee
meeting ending on 18 December 2019”, 19 December 2019.
33. Bank of England, “Andrew Bailey announced as new Governor of the Bank of England”, 20
December 2019.
34. Ruth Lea, “The IMF downgrades global growth again for 2019, slowest pace since the financial
crisis”, Arbuthnot Banking Group, 21 October 2019, discussed the Queen’s Speech of 14
October 2019.
35. BBC, “Queen’s Speech: Boris Johnson hails ‘radical’ programme”, 19 December 2019.
36. Prime Minister’s Office, “Queen’s Speech December 2019: background briefing notes”, 19
December 2019, www.gov.uk
37. BBC, “Government to shut Brexit department on 31 January”, 19 December 2019.
38. Prime Minister’s Office, “Queen’s Speech December 2019: background briefing notes”, 19
December 2019, www.gov.uk
39. BBC, “Brexit: MPs back Boris Johnson's plan to leave EU on 31 January”, 20 December 2019.
40. BBC, “Brexit: MPs back Boris Johnson's plan to leave EU on 31 January”, 20 December 2019.
41. Ruth Lea, “The IMF downgrades growth prospects again, especially for the Eurozone”,
Arbuthnot Banking Group, 15 April 2019, discussed the Cooper Act.
42. Ruth Lea, “Spending Round 2019: planned to comply with current fiscal rules”, Arbuthnot
Banking Group, 9 September 2019, discussed the Benn Act.
43. Reuters, “PM Johnson: There will be no alignment with EU rules in future relationship”, 20
December 2019.
12Annex
Table 1 Illustrative GDP growth path, GDP index, 2016=100
Quarterly data Annual data (YOY%)
(QOQ%)
2018 … 103.3
2019Q1 104.5 (0.6%)
2019Q2 104.3 (-0.2%)
2019Q3 104.8 (0.4%)
2019Q4 105.0 (0.2%)
2019 104.6 (1.3%)
2020Q1 105.3 (0.3%)
2020Q2 105.7 (0.4%)
2020Q3 106.2 (0.5%)
2020Q4 106.8 (0.6%)
2020 106.0 (1.3%)
Sources: ONS, “GDP quarterly national accounts: 2019Q3”, 20 December 2019, for back data to
2019Q3. Data for 2019Q4 onwards are extrapolated. Growth rates in brackets.
Table 2 UK economic data tracker
Date Release Source Quarter, Outcome
year
12 Nov Productivity (output per hour), ONS 2019Q3 0.3% (QOQ), flat (YOY)
flash, (2019Q3)
12 Nov Productivity (output per job), ONS 2019Q3 0.5% (QOQ), flat (YOY)
flash, (2019Q3)
29 Nov Unsecured credit (Oct) BoE 2019Q4 Growth rate (YOY): 6.1% (Oct), 5.9%
(Sep), 6.1% (Aug)
29 Nov Net mortgage borrowing (Oct) BoE 2019Q4 Growth rate (YOY): 3.2% (Oct), 3.2%
(Sep)
29 Nov Mortgage approvals for house BoE 2019Q4 64,600 (Oct), 65,800 (Sep), 66,100
purchase (Oct) (6-month average)
29 Nov Net bank lending to non- BoE 2019Q4 Growth rate (YOY): 3.8% (Oct), 4.0%
financial businesses (Oct), of (Sep)
which:
29 Nov SMEs BoE 2019Q4 Growth rate (YOY): 1.0% (Oct), 1.1%
(Sep)
29 Nov Large businesses BoE 2019Q4 Growth rate (YOY): 5.3% (Oct), 5.5%
(Sep)
2 Dec Manufacturing PMI (Nov) Markit- 2019Q4 Index: 48.9 (Nov), 49.6 (Oct)
CIPS
3 Dec Construction PMI (Nov) Markit- 2019Q4 Index: 45.3 (Nov), 44.2 (Oct)
13CIPS
4 Dec Services PMI (Nov) Markit- 2019Q4 Index: 49.3 (Nov), 50.00 (Oct)
CIPS
4 Dec All sector PMI (Nov) Markit- 2019Q4 Index: 49.3 (Nov), 50.0 (Oct)
CIPS
10 Dec GDP, monthly (Oct) ONS 2019Q4 GDP: flat (MOM), 0.7% (YOY)
10 Dec GDP: industrial breakdown ONS 2019Q4 Production: 0.1% (MOM);
(Oct) Manufacturing output: 0.2% (MOM);
Construction: -2.3% (MOM);
Services: 0.2% (MOM)
10 Dec GDP, quarterly (3 months to ONS 2019Q4 GDP: flat (QOQ), 0.8% (YOY)
Oct)
10 Dec GDP: industrial breakdown (3 ONS 2019Q4 Production: -0.7% (QOQ);
months to Oct) Manufacturing output: -0.7% (QOQ);
Construction: -0.3% (QOQ);
Services: +0.2% (QOQ)
10 Dec NIESR GDP tracker NIESR 2019Q4 GDP change: 0.3% (QOQ) in 2019Q3,
+0.1% (QOQ) in 2019Q4.
10 Dec UK trade in goods & services (3 ONS 2019Q4 Trade deficit: £7.2bn (3 months to
months to Oct) October), £4.8bn (3 months to July)
10 Dec UK trade in goods (3 months to ONS 2019Q4 Goods deficit: £35.6bn (3 months to
Oct) October), £28.8bn (3 months to July)
10 Dec UK trade in services (3 months ONS 2019Q4 Services surplus: £28.4bn (3 months
to Oct) to October), £23.9bn (3 months to
July)
16 Dec Index of labour costs per hour ONS 2019Q3 +3.8% (YOY)
(2019Q3)
17 Dec Employment (3 months to Oct) ONS 2019Q3 +24k (QOQ), +309k (YOY)
17 Dec Unemployment (3 months to ONS 2019Q3 -13k (QOQ), -93k (YOY)
Oct)
17 Dec Unemployment rate (3 months ONS 2019Q3 3.8%
to Oct)
17 Dec Vacancies (3 months to Nov) ONS 2019Q4 Total vacancies: 794k, -20k (QOQ), -
59k (YOY)
17 Dec Earnings (3 months to Oct), ONS 2019Q3 3.2% (YOY, total pay, including
nominal bonuses),
3.5% (YOY, regular pay, excluding
bonuses)
17 Dec Earnings (3 months to Oct), ONS 2019Q3 1.5% (YOY, total pay, including
real bonuses),
1.8% (YOY, regular pay, excluding
bonuses)
18 Dec CPIH (Nov) ONS 2019Q4 YOY inflation: 1.5% (Nov), 1.5% (Oct)
18 Dec CPI (Nov) ONS 2019Q4 YOY inflation: 1.5% (Nov), 1.5% (Oct)
18 Dec PPI (output) (Nov) ONS 2019Q4 YOY inflation: 0.5% (Nov), 0.8% (Oct)
18 Dec PPI (input) (Nov) ONS 2019Q4 YOY inflation: -2.7% (Nov), -5.0%
(Oct)
18 Dec Sterling effective exchange rate ONS 2019Q4 +1.7% (MOM), +1.7% (YOY)
14index (ERI) (Nov)
18 Dec House prices (Oct, official) ONS 2019Q3 YOY growth: 0.7% (Oct), 1.3% (Sep)
18 Dec House prices (Oct, official) ONS 2019Q3 -0.7% (MOM, non-seasonally
adjusted),
-0.4% (MOM, seasonally adjusted)
19 Dec Retail sales (Nov) ONS 2019Q4 Volume: -0.6% (MOM), 1.0% (YOY)
19 Dec Retail sales (3 months to Nov) ONS 2019Q4 Volume: -0.4% (QOQ), 2.4% (YOY)
20 Dec Public Sector Net Borrowing ONS 2019Q4 £5.6bn (Nov 2019), compared with
(PSNB) (Nov) £5.3bn (Nov 2018)
20 Dec Public Sector Net Borrowing ONS FY2019 £50.9bn deficit (Apr-Nov 2019),
(PSNB) (FY2019, year-to-date) compared with £45.7bn deficit (Apr-
Nov 2018)
20 Dec Public sector finances, public ONS 2019Q4 £1,808.8bn (end-Nov 2019, 80.6% of
sector net debt (PSND) (end- GDP), compared with £1,769.4bn
Nov) (end-Nov 2018, 81.4% of GDP)
20 Dec GDP, quarterly, 2019Q3, ONS 2019Q3 GDP: +0.3% (QOQ), 1.1% (YOY)
quarterly national accounts
20 Dec GDP: industrial breakdown ONS 2019Q3 Production: +0.1% (QOQ);
(2019Q3) Manufacturing output: +0.1% (QOQ);
Construction: +1.2% (QOQ);
Services: +0.5% (QOQ)
20 Dec GDP: expenditure breakdown ONS 2019Q3 Household consumption: 0.3%
(2019Q3) (QOQ);
Government consumption: -0.6%
(QOQ);
GFCF: +0.2% (QOQ), within which
business investment flat (QOQ).
Inventories: £5.8bn of destocking
(excluding adjustments).
… … … Net contribution of net trade (KP):
+£12.1bn.
Exports: +7.9% (QOQ), imports -0.3%
(QOQ)
20 Dec Current Account, Balance of ONS 2019Q3 Deficit: £15.9bn (2.8% of GDP),
Payments (2019Q3): £24.2bn (4.4% of GDP, 2019Q2)
20 Dec Trade (goods & services) ONS 2019Q3 Deficit: £0.4bn (2019Q3), £10.9bn
balance: (2019Q2)
20 Dec Visible trade balance ONS 2019Q3 Deficit: £29.2bn (2019Q3), £34.7bn
(2019Q2)
20 Dec Services balance ONS 2019Q3 Surplus: £28.8bn (2019Q3), £23.7bn
(2019Q2)
20 Dec Primary income balance ONS 2019Q3 Deficit: £8.7bn (2019Q3), £6.4bn
(2019Q2)
20 Dec Secondary income balance ONS 2019Q3 Deficit: £6.8bn (2019Q3), £6.8bn
(2019Q2)
15Table 3 Public Sector Net Borrowing (PSNB), FY2019 compared with FY2018 (£bn)
Full year Apr-Nov (recorded) Dec-Mar
FY2018 38.1 (ONS) 45.7 38.1-45.7= -7.6
(recorded)
FY2019 47.6 (OBR, December 50.9 47.6-50.9 = -3.3
2019) (implied)
Change (FY2019- +9.5 (FY2019-FY2018) +5.2 (FY2019- +4.3 (FY2019-FY2018,
FY2018) FY2018) implied)
Sources: (i) OBR, “Restated March 2019 forecast, November 2019”, 16 December 2019; (ii) ONS,
“Public sector finances: November 2019”, 20 December 2019.
Table 4 Political developments: key dates from mid-October 2019
Date Event
2019
14 October 2019 Queen’s Speech, proposed (last Queen’s Speech, 21 June 2017)
17 October 2019 UK Government and Commission agreed revised Protocol on
Ireland/Northern Ireland and revised Political Declaration
21 October 2019 Government published European Union (Withdrawal Agreement) Bill.
28 October 2019 EU27 officially agree to “flextension” to 31 January 2020. PM agrees.
31 October 2019 “Brexit Day”, as agreed on 10 April 2019, cancelled
6 November 2019 UK Parliament dissolved.
1 December 2019 New President of the European Council (Charles Michel)
1 December 2019 New European Commission (President Ursula von der Leyen).
12 December 2019 UK General Election: Conservatives win 80 overall majority
17 December 2019 Parliament reconvened after the General Election
19 December 2019 State Opening of Parliament, Queen’s Speech
20 December 2019 European Union (Withdrawal Agreement) Bill, 2nd reading in Commons.
Passes: 358/234 (majority of 124). Parliament rises.
2020
7 January 2020 Parliament returns after Christmas recess
Early 2020 European Union (Withdrawal Agreement) Bill expected to pass both Houses
of Parliament
Mid/late January European Parliament expected to ratify Withdrawal Agreement
2020
31 January 2020 Brexit Day
1 February 2020 Start of transition period
7 May 2020 Local elections, London Mayoral election
18-19 June 2020 European Council meeting
30 June 2020 Deadline for extending transition period
15-16 October European Council meeting
162020
10-11 December European Council meeting
2020
31 December 2020 End of transition period, unless extension
2021
1 January 2021 Start of new UK-EU relationship.
Table 5 Queen’s Speech, 19 December 2020
Headline Legislation, and other policy statements
Delivering Brexit & EU (Withdrawal Agreement) Bill
seizing the opportunities
it brings
Agriculture Bill
Fisheries Bill
Trade Bill
Immigration and Social Security Co-ordination (EU Withdrawal) Bill
Financial services Bill
Private International Law (Implementation of Agreements) Bill
Supporting our public NHS Funding Bill and NHS Long Term Plan Bill
services
Medicines and Medical Devices Bill
Health Service Safety Investigations Bill
Policy statements on: Social care reform; Mental health reform;
Education
Supporting workers & Employment Bill
families
Renters Bill
Building safety Bill
Fire Safety Bill
Pension Schemes Bill
Policy statements on: Housing; Online Harms; Cost of living; National
disability strategy
Strengthening the Counter Terrorism (Sentencing and Release) Bill
Justice System
Sentencing Bill
Serious Violence Bill
Sentencing (Pre-consolidation Amendments) Bill
Police Powers and Protections Bill
Prisoners (Disclosure of Information About Victims) Bill
Divorce, Dissolution and Separation Bill
Domestic Abuse Bill
Extradition (Provisional Arrest) Bill
Foreign national offenders legislation
Victims law reform
17Espionage legislation
Policy statement: Royal Commission on the Criminal Justice Process
Infrastructure, Broadband legislation
investment &
devolution
Air Traffic Management and Unmanned Aircraft Bill
Airline insolvency legislation
Railways (minimum service levels) legislation
Rail reform and High Speed Rail 2 (West Midlands - Crewe) Bill
National Security and Investment Bill (will strengthen the
Government’s powers to investigate and intervene in business
transactions (takeovers and mergers) to protect national security)
Policy statements on: National infrastructure strategy;
Science, space and research; English devolution; Business rates
Protecting the Environment Bill
environment &
improving animal
welfare
Animal welfare legislation
Policy Statement on: Climate change
Strengthening the Union Policy statements on: The Union; Constitution and democracy
& the Constitution (including repeal the Fixed-term Parliaments Act that makes
provision about the timing of parliamentary general elections)
Other measures Windrush Compensation Scheme (Expenditure) Bill
Thomas Cook Compensation Bill
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