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UK Monthly Economic ReviewMay 2013

(Based on April 2013 data releases)

Monthly headlines:

UK economy grew in Q1, but outlook remains weak

Services sector continues to drive growth as construction and manufacturing weaken

UK jobs market may be running out of steam, as deficit reduction continues to bite

UK economy grew in Q1...The first official estimate of economic growth (GDP)

revealed that the UK economy grew by 0.3% in Q1

2013. This means that the UK economy avoided

entering a new recession. This is in line with the

latest BCC Quarterly Economic Survey (QES) which

revealed that the UK economy had improved slightlyin Q1 (see chart 1). However,by historical standards

the UK economy is treading water. UK economic

growth fell by a total of 3% over the last five years

(2008Q1-2013Q1). This is in contrast to the previous

five year period (2003Q1-2008Q1), when GDP rose

by 16%. -60

-50

-40

-30

-20

-10

0

10

20

30

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

2011Q1

2011Q3

2012Q1

2012Q3

2013Q1

%Balance

Chart 1: Real GDP Growth and Home orders

Quarterly GDP growth

Services home orders

Manufacturing home orders

QuarterlyG

DPgrowth

Sources: BCC, ONS

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+

...and deficit reduction weighs on growthPublic sector borrowing totalled 120.6bn in 2012-

13, 300 million lower than the 120.9bn recorded in

2011-12. However, despite this, the UK's public

finances remain weak. UK public sector net debt as a

percentage of GDP stood at 75.4% in March 2013,

more than double its share of the economy a decade

ago (see chart 4). The lack of progress in deficit

reduction largely reflects the current weakness in the

UK economy, with corporation tax revenues falling by

6.3% in 2012/13. In our view, the ongoing challenges

associated with dealing with the UKs fiscal deficit

will continue to weaken the pace of the UKs

economic recovery.

25

35

45

55

65

75

85

2004

E

J

J

J

J

%

Chart 4:Public sector debt

Public sector net debt as a % of GDPSource: ONS

23.5

24

2400

2600

2800

Chart 5: Unemployment and inactivity rate

UKunemployment starting to riseIn the three months to February, UK unemployment

rose by 70,000 to reach 2.56 million. This increase

was mainly due to a rise in the number looking for

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0

as the UKs trade position weakens.The UK's trade deficit increased significantly in

February, from 2.5 billion to 3.6 billion, as imports

rose by 1.7% and exports declined by 1.1% (see chart

7). The UK's weak trade position reflected a deficit of

9.4 billion in goods, which was partly offset by a

surplus of 5.8 billion on services. There was also a

large fall in exports in goods to non-EU countries.

However, the forward looking QES indicates a more

upbeat outlook with export orders in both the services

and manufacturing sector increasing. This suggests

that we could see an improvement in the official trade

statistics in the coming months.

Funding for lending scheme to be extended...In a bid to boost lending to SMEs, the Bank of England

and Treasury announced a significant revamp of the

Funding for Lending scheme (FLS).There were three key

changes announced in the new-look FLS. First, FLS has

been extended from 2014 to 2015. Second, it will cover

f fi b d h b k i l di

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2012FEB

2012MAR

2012APR

2012MAY

2012JUN

2012JUL

2012AUG

2012SEP

2012OCT

2012NOV

2012DEC

2013JAN

2013FE

%chang

e

Chart 7: UK export and import growth

Exports Imports

Source: ONS

-0.5

1.5

3.5

5.5

8

18

28

GDPGro

th

Chart 8: Net Business lending and GDP growth

billion

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08/05/2013 UK Economic Briefing PAGE 4 OF 4

Chart 8: UK economic summary*, May 2013 (Based on April 2013 data releases)Deteriorating No change Improving

*Colours indicate an improvement or weakening of each indicator and refer to monthly changes unless stated. For example, an improvement in employment refers to an increase, while an improvement in

unemployment refers to a fall.

**Annual changes.

***Quarterly changes.

****Latest figures are estimates.

Sector Indictors (sources) Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

Household Retail Sales (ONS)

Consumer Confidence (GfK NOP)

House Prices (Halifax)

New car sales (SMMT)**

Mortgage approvals (Bank of England)

Business Business confidence (BCC )***

Business lending (Bank of England)

Service sector output (ONS)

Production output (ONS)

Investment intentions (Bank of England)**

Labour market Employment (ONS)

Unemployment (ONS)

Claimant count (ONS)Earnings (ONS)

Economic Activity (ONS)

F inancia l FTSE1 00 (Bank of Engla nd)

Wholesale funding (Bank of England)

Retail funding (Bank of England)

Oil prices (Bank of England)

Gold prices (Bank of England)

Government 10 year Government bonds (Bloomberg)

Public sector net borrowing (ONS)

Public sector net debt (ONS)

Tax receipts (ONS)

Current Budget (ONS)

Ex te rn al UK t ra de ba la nc e (ONS )Exchange rate (Bank of England)

Eurozone GDP (Eurostat)****

Export deliveries (BCC)***

Export orders (BCC)***