Barry NaisbittEconomic Analysis Trends in the Economy

30th September 2010, London

United Kingdom

22

GDP Growth (% q/q)

Source – OECD

-5

-4

-3

-2

-1

0

1

2

3

2005 2006 2007 2008 2009 2010

Germany Japan United Kingdom United States

Recession has been deep Output in the World’s major economies fell sharply in late 2008 and early 2009. The

economies look to have emerged from recession by late 2009.

33

Level of output by industries (Index 2006=100)

Source – ONS

85

90

95

100

105

110

2006 2007 2008 2009 2010

Wholesale & retail trade Manufacturing Total Services

Output performance has shown a mixed picture UK manufacturing output fell by 14.3% from its level in Q2’08 to the low point in Q3‘09. In contrast, total service sector output fell by 4.6% over the same period.

44

Level of employment by industries (Index 2006=100)

Source – ONS

80

90

100

110

2006 2007 2008 2009 2010

Wholesale & retail trade Manufacturing Total Services

Employment has fallen Services employment fell by 2% from its level in Q2’08 to the low point in Q4‘09. In contrast, manufacturing employment fell by 10% over the same period.

55

Unemployment Rate (%)

Source – ONS, BLS

0

1

2

3

4

5

6

7

8

9

10

2005 2006 2007 2008 2009 2010

United Kingdom United States Eurozone

Unemployment has risen as a consequence The unemployment rate in the US has risen more than rates in the UK or the Euro-zone. Unemployment in the UK reached 8.0% in March ‘10, its highest since October ’96.

66

Fiscal Tightening

Source – Budget June’10, ONS

Government borrowing has risen sharply Public sector borrowing and debt have risen sharply but governments have announced plans

to reduce borrowing by reducing spending and increasing taxation.

-2

0

2

4

6

8

10

12

2000-012001-022002-032003-04

2004-052005-062006-072007-082008-092009-102010-112011-12

2012-132013-142014-152015-16

Public Sector Net Borrowing (as % GDP) Public Sector Net Debt (as % GDP)

0

10

20

30

40

50

60

70

2000-012001-02

2002-032003-042004-052005-06

2006-072007-082008-092009-10

2010-112011-122012-132013-14

2014-152015-16

77

World Exports ($Trillion)

Source – WTO

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010

The global economy is now recovering World trade has picked up from its sharp fall and low point in Q1’09. However, it will take time to regain the previous peak in activity.

88

Average earnings growth and inflation (%)

Source – ONS

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2005 2006 2007 2008 2009 2010

Average earnings growth (excl. bonuses), %yy 3mma CPI, %

Relatively high inflation is reducing real earnings growth Despite the recession, inflation has been running above its target. As average earnings

growth has moderated, the higher inflation has squeezed real earnings growth.

99Consumers and businesses

-55

-50

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10-2

-1

0

1

2

3

4

5

GfK Consumer Confidence (LHS)

Retail Sales Volume, annual 3m/3m% (RHS)

Consumer Confidence & Retail Sales Volume ( index & 3m/3m annual % change) and Business Investment Growth (level, £bn)

20

25

30

35

40

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10

Business Investment, £bn

Source – ONS, GfK

Consumer confidence has recovered from its lows but recent readings have shown some softening. Business investment has steadied after a substantial fall in early 2009.

1010

Latest economic indicators

The economic outlook is far from certain UK GDP grew very strongly in Q2 (+1.2% q/q), but this rapid pace will weaken. There is

speculation about a possible ‘double dip’.

Source – Financial Times, 2nd September

1111Recovery is expected to continue

The new Office of Budget Responsibility (OBR) expects the economy to grow by 1.2% in 2010, 2.3% in 2011 and 2.8% in 2012.

Source–Budget June’10

Budget GDP Forecast (% Annual change in GDP)

United Kingdom