Economic Perspectives –

Tighter restrictions, more help from the Chancellor and a deteriorating labour market

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


21st December 2020


Ruth Lea CBE


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

  • The Prime Minister announced tougher anti-Covid restrictions on 19 December, with London and much of southern England entering the new tier 4, akin to lockdown.
  • The Chancellor extended the Coronavirus Job Retention Scheme (CJRS) further, until the end of April 2021, and businesses will be given until the end of March 2021 to access the three business loan schemes (Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme).
  • The Chancellor announced the date for the next Budget: 3 March 2021.
  • The labour market continues to deteriorate, with the unemployment rate rising to 4.9%, employment falling and record redundancies, in the three months to October.  
  • The annual increase in average earnings continues to rise, as more employees return from furlough. Compositional effects, reflecting a disproportionate decline in lower paid jobs, has also “inflated” the increase in average earnings.
  • CPI inflation fell to 0.3% in November, whilst producer prices inflation (both output and input) remains negative.
  • The increase in house prices picked up to 5.4% (YOY) in October, according to the ONS.
  • Retail sales slipped 3.8% (MOM) in November, as the increased anti-Covid restrictions in the month hampered activity. Online sales accounted for over 31% of sales.
  • The Markit flash indicator for December suggested very modest expansion in December after contraction in November. Manufacturing activity was significantly firmer than services activity.

International indicators:

  • The Markit flash indicator for the Eurozone suggested activity was close to stabilising in December. There continued to be growth in Germany and the rate of contraction had sharply eased in France.
  • Growth remained reasonably firm in the US in December, according to Markit, though expansion moderated in the month. 

Concerning central banks:

  • The MPC left policy unchanged at its December meeting. The Bank noted that growth was currently expected to be weaker than expected in November, reflecting the tighter than assumed anti-Covid restrictions.
  • The Fed also left monetary policy unchanged at its December meeting. The economic forecasts were improved.

 Brexit update:

  • UK-EU negotiations on the future UK-EU relationship continued last week, with no apparent resolution of the differences. Negotiations are expected to continue early this week.
  • The Internal Market Bill received the Royal Assent on 17 December.

Ruth Lea said “There is little doubt that the latest imposition of very tight restrictions in London and much of southern England, will dampen business activity, not least of all in the already struggling hospitality sector. Unsurprisingly, the Chancellor has extended the furlough scheme and the business loan schemes. Meanwhile, there still seem to be significant differences between the UK and the EU on the future UK-EU relationship, a mere 10 days before the end of the transition period. The chances seem to be tilted towards a “no deal scenario” but, suffice to say, not conclusively so.”





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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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