Economic Perspectives –

January 2021: a new relationship with the EU, as Covid-related restrictions are tightened further

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


4th January 2021


Ruth Lea CBE


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

  • The UK entered into a new relationship with the EU on 1 January 2021, under the UK-EU Trade and Cooperation Agreement (TCA).
  • Under the TCA, there are zero tariffs and zero quotas relating to goods trade. But the services chapter is somewhat limited with no agreement on “equivalence” for financial services.
  • There is a novel “rebalancing mechanism” in the TCA to deal with infringements of the “level playing field” relating to regulations and subsidies.
  • The TCA will be supervised by a Partnership Council, supported by a network of other committees. There is no role for the European Court of Justice (ECJ).
  • Recent government announcements have significantly tightened Covid-related restrictions (England). 

Concerning economic indicators:

  • Public sector net borrowing (PSNB) was £31.6bn in November 2020, and £240.9bn in the first eight months of FY2020 (April-November 2020). In November the OBR forecast borrowing of £393.5bn for FY2020, implying a further £152.6bn of borrowing for the final four months of FY2020.
  • Public sector net debt (PSND) was £2,099.8bn (99.5% of GDP) at end-November, the highest debt to GDP ratio since the financial year ending 1962 (FY1961).
  • The ONS’s revised GDP data showed growth of 16.0% (QOQ) in 2020Q3, following a 18.8% (QOQ) fall in 2020Q2. GDP in 2020Q3 was still 8.6% lower than pre-pandemic 2019Q4.
  • The Nationwide Building Society reported a 0.8% (MOM) rise in house prices in December, to be 7.3% higher YOY, a six-year high. 
  • The Society of Motor Manufacturers and Traders (SMMT) reported that UK car production was 31.0% lower YOY in the year-to-November.

Ruth Lea said “The greatest challenge to economic activity continues to be the Covid-related restrictions, which have been tightened significantly in recent days. But there are hopes, and expectations, that the Government’s vaccination programme will prove to be the ‘get out of jail card’ that will eventually, though not imminently, enable the lifting of restrictions in coming months and, hence, further economic recovery. Meanwhile, the UK-EU Trade and Cooperation Agreement, though not comprehensive, must be welcomed. A ‘no deal’ Brexit at this point could have been very disruptive.”



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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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