BDO Euro Area Quarterly 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: Euro Area Summary  ( )  ( ) = above 100; = highest in 12 months;  = below 100;   = lowest for 12 months Index level: July compared to June Introduction The BDO Euro Area Quarterly Trends Indices are ‘polls of polls’ that pull together the results of all the main business surveys. The July Quarterly 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 99.0 in April 98.9 in July from 98.4 in April 91.4 in July from 90.4 in April 98.9 in July from 98.1 in April

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 2 Euro Area Key Findings All of the Indices for the Euro Area have recorded their highest reading in 12 months in July. The Euro Area continued to show steady, yet slow, recovery over the past quarter. Economic output increased by 0.2% quarter-on-quarter in the first three months of 2010 compared, following growth of 0.1% in final quarter of The BDO Output Index suggests that for the remainder of 2010 output is likely to continue to grow, but at a level below the long term average trend. The BDO Employment Index suggests that the Euro Area labour market will continue to stabilise over the following quarter. Unemployment remained steady at 10.0% in June. Geographical variations within the euro area are significant. Whereas the northern region, including countries like Germany, Netherlands and Denmark, have seen the strongest recovery in employment, countries around the Mediterranean continue to experience high unemployment rates, with Spain the highest with a 20.0% unemployment rate. Inflation was up 1.7% in July from 1.4% in June. As is evident from the BDO Inflation Index, inflationary pressure are likely to remain weak for the remainder of With inflation likely to remain under the European Central Bank’s (ECB) target rate over the coming quarter, it is unlikely that base rates will rise over the medium term.

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 3 Euro area growth to remain weak for the remainder of 2010 BDO Euro Area Output Index (scaled) vs Euro Area GDP Growth The BDO Output Index recorded a score of 98.5 in July, up from 97.6 in April. This is the highest score since April The BDO Optimism Index also edged up, reaching 98.9 in July from 98.4 in April. This is also the highest reading since April This suggests that output in the euro area over the next two quarters may continue gain traction. With a score of between 95 and 100 signalling below long term average growth rates, euro area output is likely to remain sluggish into However, memories of the Greek crises seem to be gradually fading, confidence slowly re- emerges in the euro area. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 4 The euro area labour market shows signs of stabilisation BDO Euro Area Employment Index (scaled) vs Euro Area change in unemployment rate The BDO Employment Index edged up slightly in July to 98.9 from 98.1 in April. This is the highest reading since April Eurozone unemployment remained stable at 10.0% in June. The latest data from the BDO Employment Index suggests a flattening out of unemployment over the third quarter. The BDO German Index suggests that unemployment will fall over the coming quarter, while French and Italian unemployment rates may not have turned the corner yet. Risks ahead lie in the public sector, as many countries pursue a policy of fiscal austerity. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 5 Inflationary pressures in the euro area remain weak BDO Inflation Index (scaled) vs Euro Area change in inflation The BDO Inflation Index edged up to 91.4 in July from 90.4 in April. The is the highest score since January 2008 and is the third quarter in succession in which this index has risen. Euro area inflation was 1.7% in July, compared with 1.4% in June. This remains below the European Central Bank’s target rate. The BDO Inflation Index suggests that inflationary pressure are likely to remain weak in the Euro Area over the coming quarter. As such it is likely that the European Central Bank will keep base rates on hold over the next quarter and possibly into Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 6 BDO Eurozone Indices to July 2010 Optimism IndexOutput IndexInflationEmp ManfServTotalManfServTotal Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 7 BDO German Indices to July 2010 Optimism IndexOutput IndexInflationEmp ManfServTotalManfServTotal Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 8 BDO French Indices to July 2010 Optimism IndexOutput IndexInflationEmp ManfServTotalManfServTotal Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 9 BDO Italian Indices to July 2010 Optimism IndexOutput IndexInflationEmp ManfServTotalManfServTotal Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

BDO Euro Area Quarterly Business Trends Indices July 2010 Page 10 Methodological Notes The BDO Quarterly UK and euro area 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 UK indices are calculated by taking a weighted average of the results of all the main business surveys carried out during the last three months. They incorporate the results of the quarterly CBI Industrial Trends Survey; the CBI Distributive Trades Survey; the CBI/PriceWaterhouseCoopers Financial Services Survey; the British Chambers of Commerce Quarterly Economic Survey; the Institute of Directors Business Opinion survey; the Chartered Institute of Marketing’s Marketing Trends Survey; and the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and Services. The Euro area indices are calculated by taking a weighted average of the results of Europe’s main business surveys. They incorporate the results of the German IFO surveys, French INSEE surveys, Italian ISAE surveys, plus the main business surveys from the Austrian WIFO, Belgium National Bank, Spanish MCYT, Greek Foundation of Economics and Industrial Research, Irish Economic and Social Research Institute, the STATEC survey from Luxembourg, the Confederation of Finnish Industry and Employers, the Dutch central Bureau of statistics and the Portuguese INE surveys as well as the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and of Services for Europe. Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees in the UK. 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. Based on the relative importance of each of the Euro area countries in terms of contribution to GDP, the country indices have then been weighted to produce the UK and EU index for output, optimism, unemployment and prices. The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, as leading indicators of the rates of inflation and growth. The figures show how the scaled indicators relate to inflation and growth, and forecasts based on the BDO indices can be read from these charts. The BDO optimism indices collate the results of surveys of business confidence. These act as a leading indicator of GDP growth two quarters ahead. So the April index, published in this report, is a leading indicator of GDP growth in quarter three of The BDO output indices collate the results of surveys of business turnover or output expectations. These act as a leading indicator of GDP growth in the next quarter. So the April index, published in this report, is a leading indicator of GDP growth in the second quarter of The BDO inflation indices collate the results of surveys of business price expectations. These act as a leading indicator of changes in price inflation measured by the Consumer Price Index one quarter ahead. So the April index, published in this report, is a leading indicator of rate of change in the GDP deflator in quarter two of 2010.