BDO Monthly Business Trends Indices November 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: September compared to August Introduction The BDO Monthly Trends Indices are ‘polls of polls’ that pull together the results of all the main business surveys. The November Monthly Indices update the results in the ‘BDO Business Trends Report’ produced in October The latest results include new business surveys carried out between the 1st October and the 31st October in October from 95.9 in September 91.9 in October from 91.6 in September in October from in September 94.0 in October from 94.1 in September

BDO Monthly Business Trends Indices November 2010 Page 2 Key Findings The main development in October’s is the output index, which forecasts output over the next quarter, has fallen below 95.0 (suggesting contraction) for the first time since June In addition, at 91.9 in October, the optimism index suggests a quarterly GDP contraction in Q Since March 2010 there has been a steady easing in expectations for output over the following quarter. This has been split between the services and manufacturing sectors. The manufacturing output sub-index now stands at 99.1, from in May 2010, while the services sub-index now stands at 92.5, compared to in March Both have fallen sharply over the past two months. In the current economic climate, however, the output index may have to be interpreted with caution. One key reason for the higher than expected level of quarterly growth in Q3 was a significant increase in construction output. The BDO output index does not currently capture the impact of the construction sector. This therefore goes some way to explaining why the index underestimated Q3 growth. Going forward, construction sector growth is likely to ease substantially, so this effect should dissipate. Also of note is the employment index figures which fell for the third consecutive month; remaining below 95.0 for the third month. Given the private sector scope of the surveys used to compile this index, this results casts a shadow over the strength of the private sector labour market recovery.

BDO Monthly Business Trends Indices November 2010 Page 3 Output index falls for fourth month in a row BDO Output Index, 100 = average trend growth. Greater than 95 = positive growth The BDO output index had suggested the UK economy would expand by 0.4% over Q3. Although this was in line with the expectations from economist polled by Bloomberg, Q3 growth actually came in at 0.8%, primarily due to higher than expected growth in the construction sector. The BDO output index fell to 93.8 in October, down from 95.9 in September. This marks the fourth consecutive month that the index has declined. For the first time since June 2009 the index is below the 95.0 mark, signalling potential contraction over the next quarter. Caution should always be placed on one month of data, but a further score under 95.0 next month would fuel expectations of negative quarterly growth in Q4. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices November 2010 Page 4 Optimism edges up after 5 months of falls BDO Optimism Index, 100 = average trend growth. Greater than 95 = positive growth The optimism index edged up in October to stand at 91.9, from 91.6 the previous month. This is the first increase in the index since April Most importantly, however, is the optimism index, which looks at output two quarters ahead, has been below 95.0 (suggesting contraction) for the last three months. The latest data, although slightly up from last month, continue to suggest quarterly growth could be negative in Q Indeed, the latest optimism index data also suggest that growth could remain extremely sluggish into Q Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices November 2010 Page 5 Inflation eases, but only slightly BDO Inflation Index, 100 = average trend growth. Greater than 95 = positive growth The BDO inflation index fell slightly in October to 105.3, down from in September. The BDO inflation index measures inflation expectations over the coming quarter. A value above 95.0 indicates positive annual inflation, on the consumer price index (CPI) measure, while above 100 suggests above the Bank of England target of 2.0 per cent. The current inflation index suggests inflation is likely to remain elevated for the remainder of the year. This concurs with Cebr’s and the Bank of England’s view on the likely path of inflation. Rising soft commodity prices in recent months, such as wheat and cotton prices, could keep inflation higher for longer. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices November 2010 Page 6 Labour market continues to weaken BDO Employment Index, 100 = average trend growth. Greater than 95 = positive growth The employment index fell to 94.0 in October, slightly down from 94.1 in September. This is the third month in which the employment index has been below A value of 95.0 on the BDO employment index indicates no change to employment, while a value below this is indicative of a fall in employment. The surveys used to compile this index mainly cover the private sector. As the index continues to show that employment is likely to decline, further questions are raised over the private sectors ability to soak up the job losses from the public sector. The most recent official labour market statistics show that the claimant count rose by 5,300 between August and September, which broadly aligns with the most recent trends in the BDO employment index. Source: PMI, Bank of England, CBI and the Office for National Statistics

BDO Monthly Business Trends Indices November 2010 Page 7 BDO Indices to October 2010 NovDecJanFebMarAprMayJuneJulyAugSepOct 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 November 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 November 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.