1. REIU (Regional Economic Intelligence Unit) July 2013 Economic Update from the Regional Economic Intelligence Unit Leeds City Council

2. REIU (Regional Economic Intelligence Unit) Global headlines.. □ China – China's manufacturers reported a further slowdown in activity in June, as sluggish global demand takes its toll on the country's export-led economic model. The official manufacturing PMI fell (to 50.1). China's services sector accounted for 46% of the economy in 2012 and overtook manufacturing as the biggest employer in the country in 2011. □ Euro-zone – Activity in the euro-zone manufacturing sector continued to decline in June but at the least severe rate in almost a year and a half. Germany--the biggest exporter among the 17 euro-zone nations--moved further into a mild contraction. The German PMI actually shrank a bit in June – the manufacturing index fell from 49.4 (to 48.6). □ US economy – U.S. jobs growth was stronger than expected in June and the employment count for the previous two months was revised higher, reinforcing expectations that the Federal Reserve will start winding down its massive stimulus program as early as September. □ Japanese economy – clear evidence from the Tankan (June 2013) and Sakura (June 2013) surveys points to a strong improvement in domestic demand across most sectors and area’s of Japan with the country still riding the wave of premier Abe’s reflationary push. □ Emerging markets - Emerging-market economic activity grew at its slowest pace in June in more than four years, according to HSBC. Its Emerging Market Index, which tracks purchasing managers' index reports from 16 emerging economies on a gross domestic product-weighted basis, fell to 50.6 last month from 51.3 in May.

3. REIU (Regional Economic Intelligence Unit) Global economic forecasts… Source: OECD WEO, May 2013

4. REIU (Regional Economic Intelligence Unit) Global business sentiment…

5. REIU (Regional Economic Intelligence Unit) Developed economies…..drivers of growth □ Key points – UK exports are contributing strongly to exports (currently the best in this respect amongst the developed industrial countries). □ Domestic private consumption remains the most significant contributor to GDP. Source: OECD WEO, May 2013

6. REIU (Regional Economic Intelligence Unit) UK macro overview

7. REIU (Regional Economic Intelligence Unit) Key headlines….. □ ONS’s latest UK labour market update confirms that the pace of job creation remains strong, with employment rising by 336,000 in the year to May 2013. The pace of employment growth slowed in the quarter to May, but may have been influenced by rising a trend of growth in salaried employment at the expense of self-employment (the former rising by 34,000 and the latter falling by 28,0000). □ The headline ILO unemployment rate now stands at 7.8%, whilst the claimant count rate fell to 4.4% in June (from 4.5% in May). □ The Consumer Price Index (CPI) annual inflation rate picked up in June to 2.9%, from 2.7% in May. The increase, the second monthly rise in a row taking the rate well above the 2.4% seen in April (clothing and fuel cost rises were behind the increase). □ Revised Q1 2013 national accounts data heralded a significant revision to GDP back to 2008, in summary ONS now believe:  The UK economy grew by 0.3% in first quarter of 2013  A double dip recession do not occur in 2012 technically (due to a 0.1% upgrade to growth in Q1 2012).  The recession in 2009 was more severe than previously estimated – the UK economy shrank by 5.2% in 2009 compared to the previous estimate of 4%) – the result is that the UK economy and the Yorkshire economy are correspondingly smaller than was previously assumed meaning it will be 2016 (rather than 2014) before they return to precession levels.

8. REIU (Regional Economic Intelligence Unit) More headlines…… □ Notwithstanding the revised historical perspective shown by the ONS revised GDP data, the IMF recently raised its forecast for UK growth in 2013, from 0.7% to 1% (recognising that the fundamentals of the recovery are now widely accepted amongst forecasters). □ The BoE kept the main deposit rate at 0.5% at its July PMC meeting and signalled clearly its intent to call time on QE – the BoE will shift to a policy of clearer forward guidance to the market in a Fed style approach to managing the market. □ Strong business activity and sentiment nationally is evident across all parts of the economy with PMI activity indexes for services, manufacturing and construction all showing strong growth in activity in June – the services index registered 56.9 (from 54.9 in May), manufacturing activity registered 52.5 (climbing from 51.5 in May) and construction sector continued its recovery with reading of 51 (rising from 50.8 in May). □ Retail sales grew by 2.1% in June (Source: ONS), after falling by 1.1% in May. The three month data smooth's out the fall in sales seen in April (due to poor weather) and suggests retail volumes grew by 0.7%. Food retailers posted the strongest increase due in part to significant discounting by the major supermarkets in May. □ Trade data – recent data from the BCC’s QES survey data suggests that pace of export order growth has accelerated significantly in the quarter to June (the rate of expansion was fastest monthly uptick in exports since the QES began in 1989). ONS estimate that the UK trade deficit was £2.4 billion in May, having rising by £300 million since April – it could be October before the BCC trend is reflected in government data.

9. REIU (Regional Economic Intelligence Unit) Comprehensive Spending Review…… □ The recent CSR announcement set out the governments intention to find an additional £11.5 billion in spending cuts in 2015/2016. □ In order to maintain the “ring fence” around health, education and international development most departments will face cuts of between 5% to 10% in 2015/2016. □ Measures to support the economy were principally focused on the announcement of a long term capital plan for investment of £100 billion. □ The further detail published by the government (in CSR) makes it clear who the sectoral winners and losers are likely to be – with construction likely to be the main beneficiary of the additional capital spending. The public sector will shrink further in terms of headcount and contribution to consumption. □ On the consumer front CSR targeted two group in particular – public sector workers and benefit claimants. □ Despite the additional cuts in spending it is far from clear that the government has the ability to deliver the scale of cuts contemplated given the scale of existing cuts to departmental budgets and risk that the UK’s borrowing costs may well increase. □ Perhaps of more concern in the short term is the volatility in the bond markets which has pushed up the UK’s borrowing costs, making a “cuts” only approach to balancing the cyclically adjusted deficit unrealistic.

10. REIU (Regional Economic Intelligence Unit) Yorkshire and Humber Economy

11. REIU (Regional Economic Intelligence Unit) Key economic headlines… □ Economic activity rates in Yorkshire over the last three months was higher that in London and the Midlands. □ The Yorkshire and Humber economy will grow by 0.3% in 2013, with grow accelerating to 1.2% in 2014. (Source: RPS, 2013) □ Employment growth of 1.2% is forecast this year, with the rate of employment growth softening into 2014 (0.8%). (Source: RPS, 2013) □ It’s clear from these forecasts that productivity per job is falling in the region, 2013 is the “Pinch point” for this, but we expect productivity per job to pick from 2014. □ Labour market trends are broadly consistent with those seen nationally with the claimant count rate falling slightly (to 5.7% from 5.9%) and the headline ILO rate falling 0.2pp to 9.2% (nationally the headline rate remained unchanged). (Source, ONS July 2013) □ Total employment rose by 11,000 in the quarter to May and by 59,000 in the year to May. (Source: LFS, ONS). □ Business sentiment is strongly positive at the moment – with an uptick in activity since the start of 2013 and recent (May and June) improvements in export order books (Source: Markit/Lloyds Yorkshire and Humber PMI). □ Trade data also support the view in official statistics that exports are contributing strongly to GDP at present within Yorkshire and Humber (BCC, QES).

12. REIU (Regional Economic Intelligence Unit) □ Between 2007-2012, Public Services, Utilities, Information and Communication and Professional Services grew strongly in percentage terms. The Performance of Yorkshire Sectors (GVA)

13. REIU (Regional Economic Intelligence Unit) □ Between 2007-2012, the Utilities sector in Yorkshire enjoyed the strongest growth, in percentage terms. □ Over the medium term, Construction, Transport and Storage and Accommodation, Recreation and Food Services are all forecast to grow strongly in terms of employment. The Performance of Yorkshire Sectors (FTE)

14. REIU (Regional Economic Intelligence Unit) □ Over the three months to June, economic activity rates in Yorkshire were higher than in London and the midlands. Economic Activity Rates (%) Source: ONS LFS/APS

15. REIU (Regional Economic Intelligence Unit) Business sentiment in Yorkshire…. □ Overall activity levels have picked up strongly across Yorkshire since the start of the year. □ Private sector activity reached a high of 57.6 in May, the highest in three years.

16. REIU (Regional Economic Intelligence Unit) Employer hiring sentiment….. □ The pick up in activity levels since start of 2013 did not translate into more hiring, but recent data suggest expansion of activity is leading to net new jobs growth especially in services.

17. REIU (Regional Economic Intelligence Unit) The Yorkshire 50 □ The Yorkshire 50, the index of the top 50 quoted companies in the region has typically tracked the main LSA bourse. □ The stock market performance of the construction companies in Yorkshire has made a very strong contribution to overall performance of the Y50.

18. REIU (Regional Economic Intelligence Unit) Emerging investment architecture….