The economy is recovering strongly according to the latest indicators

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


7th June 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:

  • The Markit surveys for May showed a sharp recovery in all three sectors: manufacturing, services and construction. The surveys also showed higher inflationary pressures.  
  • The mortgage market was still strong in April according to the Bank, even though net mortgage borrowing eased to £3.3bn in the month. Mortgage approvals for house purchase ticked up in April, to 86,900, from 83,400 in March, remaining relatively strong even though they are down from a recent peak of 103,400 in November. By comparison, there were 73,400 approvals for house purchase in February 2020.
  • The Bank reported that households continued to making net repayments of consumer credit in April. However, the net repayment of £0.4bn in April 2021 was smaller than seen on average each month over the past year (£1.7bn).
  • Bank data show that the household sector’s money holdings increased by nearly £210bn between pre-pandemic February 2020 and April 2021, whilst private non-financial corporations (PNFCs) increased their money holdings by nearly £130bn.
  • The Nationwide reported house prices increased 10.9% (YOY) in May, after April’s 7.1%.
  • The SMMT reported that May’s new car registrations were up 8-fold (YOY), but they were still 13.2% lower than the 10-year average for May.
  • HMRC data showed that the number of employments on furlough was around 3.4mn on 30 April 2021, down 900,000 from 4.3mn on 31 March 2021.
  • The ONS estimated that the number on furlough could be as low as 2.1mn in mid-May.

International update:

  • The OECD now expects that global GDP growth will be 5.8% in 2021 (compared with 4.2% forecast in December and 5.6% in March), helped by a government stimulus-led upturn in the US, and will be 4.4% in 2022 (compared with 3.7% in December, 4.0% in March).
  • The OECD GDP growth projections for the UK were revised up again to 7.2% in 2021 (4.2% in December, 5.1% in March) and to 5.5% in 2022 (4.1% in December, 4.7% in March), supported by the successful vaccination programme and the US stimulus.
  • The US government’s budget for fiscal year 2022 (October 2021-September 2022) was released on 27 May 2021. Spending is planned to total about $6tn in 2022 and 2023, rising to $8.2tn by 2031, whilst the budget deficit is projected to be around $1.4bn per year for much of the forecast period.
  • There is a policy-setting meeting of the ECB next week (announcement on 10 June). Monetary policy is expected to remain accommodative, despite a recent pick-up in the Eurozone CPI inflation rate.
  • At their 1 June meeting OPEC and its non-OPEC partners agreed to continue easing cuts in oil production. Nevertheless, oil prices have firmed and were nearly $72pb (Brent Crude) by 4 June. Oil prices are now well above pre-pandemic levels.

Ruth Lea said “All the indicators released last week, not least of all the latest Markit surveys, suggested that the economy is recovering strongly. Under these circumstances, it is relevant to consider the appropriateness of current monetary policy, which is very accommodative.

At the May MPC meeting Chief Economist Andy Haldane voted (alone) to cut the £875bn bond purchases target, voting to lower the existing programme of bond purchases from £150bn to £100bn and therefore reducing the target to £825bn, on the grounds that the economy could overheat, triggering inflationary pressures. Even though it should be emphasised that the increase in April’s CPI inflation rate largely reflected base effects, Mr Haldane’s concerns look eminently reasonable. Given the expected strength of the “bounce-back”, the MPC should seriously consider cutting back the current bond purchasing programme to £100bn, as proposed by Mr Haldane."





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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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