1. The recovery and your business Mark Smyth, RBS Group Economics April 2010

2. Slide 2 A return (of sorts) to positive growth GDP growth (q/q) Source: ONS

3. Slide 3 In the local economy too PMI survey (business activity) Source: Markit

4. Slide 4 However, we’ve got a lot of ground to recover Source: ONS

5. Slide 5 The property price correction Property prices (index, peak =100) Source: Nationwide, IPD

6. Slide 6 Growth prospects depend on who can spend Consumers 50% of demand Investment 15% of demand Government 15% of demand Exports 20% of demand

7. Slide 7 The rise in household debt … Source: Bank of England

8. Slide 8 … leads to a need to save more £96 Long-run average Q1 2008 Q3 2009 Income Spend £104 £93 £4 -£4 £7 Save

9. Slide 9 Employment – tough, but not as tough as before Source: ONS

10. Slide 10 But labour market softness = weak wage growth Source: ONS

11. Slide 11 Profits not hit as hard as might have been expected Source: ONS

12. Slide 12 But investment likely to remain subdued Source: ONS

13. Slide 13 The public finances are under pressure Source: HM Treasury

14. Slide 14 With future strains on public spending “... the crisis has dealt a permanent hit to the Exchequer costing around 6½ per cent of national income... Over the course of next parliament, we know that the strain will be taken primarily by public spending.”

15. Slide 15 Sterling weakness should boost exports Source: Thomson Datastream

16. Slide 16 But requires a rebalance to faster growing markets Source: IMF

17. Slide 17 A sluggish recovery Index of real GDP, 100 = start of recession Source: ONS, RBS Group Economics

18. Slide 18 With inflation below its target level Source: ONS, RBS Group Economics

19. Slide 19 Base rates – slow to move, but don’t get caught out... Source: RBS Group Economics

20. Slide 20 Relative growth rates in our central forecast Above average Manufacturing Construction Average Business services Retail & wholesale Below average Hotels & restaurants Health & education Regions Sectors London Eastern England East Midlands North West South East West Midlands Yorks & Hum Scotland South West North East Wales Northern Ireland

21. Slide 21 Spot the difference: sector breakdown in the West Mids Share of total GVA in 2007 Source: ONS

22. Slide 22 What about longer-term growth Labour force growth (c.0.7% per annum): Demographic trends Immigration Productivity growth (c.2.1% per annum): Investment Cost of capital Fixing private and public sector balance sheets Cost of moving resources across sectors

23. Slide 23 Key messages The worst is over, but we’re not out of the woods yet –Economic outlook remains uncertain with both up and downside risks –Demand conditions: likely to be tough Structural drags will inhibit the speed of recovery –Cost of capital likely to be higher –Balance sheets have to be repaired – no quick fix Export potential, especially to emerging markets Weak Pricing power –Weak demand = reduced bargaining power –But it cuts both ways – suppliers and wage costs Policy: central banks deliberately behind the curve –But long rates likely to move first – don’t get caught out

24. Slide 24 Keep in touch

25. Slide 25 Legal disclaimer This material is published by The Royal Bank of Scotland plc (“RBS”) which is authorised and regulated by the Financial Services Authority for the conduct of regulated activities in the UK. It has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments, other financial instruments or related derivatives (“Securities”). It should not be reproduced or disclosed to any other person, without our prior consent. This material is not intended for distribution in any jurisdiction in which its distribution would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation, express or implied, nor does it accept any responsibility or liability of any kind, with regard to the accuracy or completeness of this information. Unless otherwise stated, any views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the RBS Group’s Group Economics Department, as of the date of publication of this material and are subject to change without notice. Recipients of this material should make their own independent evaluation of this information and make such other investigations as they consider necessary (including obtaining independent financial advice), before acting in reliance on this information. This material should not be regarded as providing any specific advice. RBS accepts no obligation to provide any advice or recommendations in respect of the information contained in this material and accepts no fiduciary duties to the recipient in relation to this information.