BDO Monthly Business Trends Indices July 2010 Page 1 Current Confidence Index BDO Output Index BDO Optimism Index Movement in Month BDO Inflation Index BDO Employment Index KEY: Summary and key findings    ( ) = above 100; = highest in 12 months;  = below 100;   = lowest for 12 months Index level: July compared to June Introduction The BDO Monthly Trends Indices are ‘polls of polls’ that pull together the results of all the main business surveys. The July Monthly Indices update the results in the ‘BDO Business Trends Report’ produced in August The latest results include new business surveys carried out between the 1st July and the 31st July in July from in June 95.5 in July from 96.9 in June in July from in June 96.6 in July from 95.3 in June

BDO Monthly Business Trends Indices July 2010 Page 2 Key Findings In June the BDO output index capped off an entire quarter of above long term trend growth. The result suggested that output growth in the UK was likely to be strong in the second quarter. These findings were reflected in the Office for National Statistics preliminary estimate of growth in the second quarter, with higher than expected quarterly growth of 1.1%. In July the output index slumped to just below 100, symptomatic of quarterly growth around 0.6% in the third quarter. The more forward looking BDO optimism index also fell in July, suggesting sluggish growth in the fourth quarter. The BDO output and optimism indices combine to imply that although the UK recovery is on track that the recovery is likely to lose some momentum in the second half of the year. This month’s data indicate that over the next quarter employment is likely to expand. This is largely a reflection of the surveys that input into the BDO employment index, as most are representative of the private sector. The index suggests that the private sector labour market is showing signs of improvement. The BDO inflation index edged up further beyond 100. Inflation expectations for the next quarter are therefore likely to remain above 2.0%. With growth set to ease in the second half of the year, however, the Monetary Policy Committee is unlikely to see the need to raise interest rates in the near future.

BDO Monthly Business Trends Indices July 2010 Page 3 Output growth set to cool in the third quarter… BDO Output Index, 100 = average trend growth The BDO output index fell below average growth levels in July at 99.8, down from in June. The BDO index had remained above 100 for the whole of the second quarter. This finding crystallised when UK output exceeded most expectations with 1.1 per cent quarterly growth in GDP in Q2. The score for July, the first month of the third quarter, has fallen to below 100 for the first time since February this year, a quarter in which growth came in far weaker at 0.3% quart-on- quarter. If this score is repeated in August and September we would expect quarterly growth in the third quarter to be approximately 0.6 per cent. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices July 2010 Page 4 … with fourth quarter growth to ease even further. BDO Optimism Index, 100 = average trend growth The BDO optimism index is set up to predict annual output growth two quarters ahead. The BDO optimism index suggests that the pace of growth may weaken further in the fourth quarter. The index fell to 95.5 in July from 96.9 in June. This is the lowest reading on this index since July 2009 and the third monthly fall in succession.  The current reading suggests growth only marginally positive towards the end of Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices July 2010 Page 5 Inflation expected to remain above 2.0% in third quarter BDO Inflation Index, 100 = average trend growth The BDO inflation index continued to edge up in July to from in June. The BDO inflation index measures inflation expectations over the coming quarter. A value above 95.0 indicates positive annual inflation, while above 100 suggests above long term average trend of 2% inflation. The official statistics showed that the annual rate of inflation in the United Kingdom was 3.2% in June, down from 3.4% in May. Inflation has continued to surprise on the up side, but this is mainly due to temporary factors such as the VAT reversal, rising commodity prices and the depreciation of sterling. The current BDO inflation score suggests that expectations are for a continuation of elevated inflation over the coming quarter. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices July 2010 Page 6 Signs of private sector labour market recovery. BDO Employment Index, 100 = average trend growth A value of 95.0 on the BDO Employment index indicates no change to employment. This month’s 96.6 score suggests a marginal increased employment over the next quarter, but well below long terms average trend growth of 1.0% As such, with the highest score since October 2008, this month’s data suggest the labour market may be beginning to stabilise. However, the BDO employment index mainly reflects the private sector and may not reveal the full impact of the impending public sector job cuts. These will mainly take effect in 2011/12 when annual general government employment growth is expected to decline by 1.2%. Given that so much of the workforce is still in part time employment, the effect of private sector job creation may still be relatively muted. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices July 2010 Page 7 BDO Indices to July 2010 AugSepOctNovDecJanFebMarAprMayJuneJuly The BDO optimism index Total Small Large Manuf Service The BDO output index Total Small Large Manuf Service The BDO inflation index Total The BDO employment index Total

BDO Monthly Business Trends Indices July 2010 Page 8 For further details Peter Hemington: BDO LLP, 55 Baker Street, London W1M 1DA Telephone: Fax: Douglas McWilliams, Charles Davis or Owen James: the centre for economics and business research ltd, Unit 1, 4 Bath Street, London EC1V 9DX Telephone: Fax: or

BDO Monthly Business Trends Indices July 2010 Page 9 Methodological Notes The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the centre for economics and business research ltd., a leading independent economics consultancy. cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques. The indices are calculated by taking a weighted average of the results of the UK’s main business surveys. It incorporates the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months); the Bank of England Agents’ summary of business conditions; and the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and of Services. Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available. The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles. Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90. The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.