Welcometoto
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Mick McKigneyMick McKigney
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Local Labour MarketLocal Labour Market
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�� Unemployment:Unemployment:•• January 2010 January 2010 –– 9,409,9,409, a rise of 625 (i.e. an a rise of 625 (i.e. an
increase of 7.1%) since December 2009increase of 7.1%) since December 2009
•• 4.7% 4.7% -- below regional (5.0%)below regional (5.0%) but above but above
national average (4.3%)national average (4.3%)
�� Vacancies:Vacancies:
•• January vacancies January vacancies –– 2,509 (a fall of 195 since 2,509 (a fall of 195 since
December 2009)December 2009)
•• 6,9006,900 less vacancies than job seekersless vacancies than job seekers
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Unemployment TrendsUnemployment Trends
Unemployment Trends
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Dec-0
5
Apr-0
6
Aug-0
6
Dec-0
6
Apr-0
7
Aug-0
7
Dec-0
7
Apr-0
8
Aug-0
8
Dec-0
8
Apr-0
9
Aug-0
9
Dec-0
9
Source NOMIS, February 2010
%of Unemploye
d
Wakefield
Yorkshire & the Humber
Great Britain
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Vacancy TrendsVacancy Trends
Wakefield Claimants and Vacancies, 2008-2010
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Mar
-08
May
-08
Jul-
08
Sep-
08
Nov-
08
Jan-
09
Mar
-09
May
-09
Jul-
09
Sep-
09
Nov-
09
Jan-
10
Claimants
Total Vacancies
Source: NOMIS, 16th December 2009
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Business NewsBusiness News
�� TV Bike Launched in TV Bike Launched in WakefieldWakefield•• Carbon neutral advertising Carbon neutral advertising
conceptconcept
•• Contains 2 x 45Contains 2 x 45’’’’ plasma plasma screens, plus audio and screens, plus audio and Bluetooth capacity Bluetooth capacity
•• Can access all areasCan access all areas
•• Designed by WakefieldDesigned by Wakefield--based based Media DisplaysMedia Displays
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Business NewsBusiness News
�� Scottish & Southern Energy Scottish & Southern Energy ––
major investment plansmajor investment plans•• Seeking planning permission for a Seeking planning permission for a
££21M carbon capture R&D plant at 21M carbon capture R&D plant at
Ferrybridge Power stationFerrybridge Power station
•• Construction will begin this summer Construction will begin this summer
for completion in 2011for completion in 2011
•• Planning permission sought for a Planning permission sought for a
££350M 108MW multi350M 108MW multi--fuel Combined fuel Combined
Heat & Power facilityHeat & Power facility
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Business NewsBusiness News
�� Future Jobs Fund Creates Future Jobs Fund Creates Employment at Employment at GroundworkGroundwork•• Secured a Secured a ££390,000390,000 bidbid
•• 20 young people, who were 20 young people, who were all claiming JSA, have been all claiming JSA, have been employed in various employed in various positions including positions including administration, finance and administration, finance and landscapinglandscaping
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�� Tangerine Confectionery Secures Contract Tangerine Confectionery Secures Contract
Down UnderDown Under•• Supplying Australian supermarkets with Supplying Australian supermarkets with
Taverners and Sherbet FountainsTaverners and Sherbet Fountains
•• PoundPound’’s weakness has presented export s weakness has presented export
opportunitiesopportunities
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�� LightsongLightsong Media Group Media Group
PartnershipPartnership
•• DigitallyDigitally--led music led music
companycompany
•• Confirmed a licensing Confirmed a licensing
agreement with Sunshine agreement with Sunshine
HQ Ltd, the SheffieldHQ Ltd, the Sheffield--
based music, media and based music, media and
entertainment providerentertainment provider
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�� RedhallRedhall Group Sees Group Sees Healthy ProfitsHealthy Profits•• Shares leapt due to a big Shares leapt due to a big
rise in annual profits and rise in annual profits and a strong order booka strong order book
�� CarcloCarclo Raises Raises ££3.7M 3.7M •• OssetOsset--based plastics based plastics
and lighting group is and lighting group is raising raising ££3.7M through 3.7M through share placingshare placing
Business NewsBusiness News
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DevelopmentsDevelopments
�� New Council Office Gets New Council Office Gets
Green LightGreen Light
•• FourFour--storey, 123,000 sq ft storey, 123,000 sq ft
office blockoffice block
•• Will hold 1,100 peopleWill hold 1,100 people
•• Work will start in summerWork will start in summer
•• Second phase of Merchant Second phase of Merchant
Gate developmentGate development
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DevelopmentsDevelopments
�� Major Construction Complete at the Major Construction Complete at the Hepworth WakefieldHepworth Wakefield•• One of the largest purposeOne of the largest purpose--built galleries outside built galleries outside
of Londonof London
•• Will house a learning centre, cafWill house a learning centre, caféé, shops and 100, shops and 100--seat auditoriumseat auditorium
•• Expected to open in May 2011Expected to open in May 2011
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DevelopmentsDevelopments
�� Hospital Takes ShapeHospital Takes Shape
•• ££240M Wakefield hospital 240M Wakefield hospital
will take patients this will take patients this
summersummer
•• The new The new ££60M Pontefract 60M Pontefract
hospital opened for hospital opened for
physiotherapy in Januaryphysiotherapy in January
•• Both hospitals expected to Both hospitals expected to
be fully operational by be fully operational by
January 2011January 2011
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DevelopmentsDevelopments
�� First Phase of Nostell First Phase of Nostell
Business Park Business Park
CompleteComplete
•• ££2.2M project2.2M project
•• 5 energy efficient office 5 energy efficient office
suites createdsuites created
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DevelopmentsDevelopments
�� Grand CentralGrand Central’’s West s West
Ridings service to King's Ridings service to King's
Cross in full test next Cross in full test next
monthmonth•• Crew training in AprilCrew training in April
•• First services in May 2010First services in May 2010
•• Trains will call at Pontefract Trains will call at Pontefract
Monkhill, Wakefield Kirkgate, Monkhill, Wakefield Kirkgate,
Doncaster & LondonDoncaster & London
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EventsEvents
�� LetLet’’s Work Togethers Work Together
•• Tackling Youth UnemploymentTackling Youth Unemployment
•• 2626thth March, 11.30am March, 11.30am –– 2.30pm 2.30pm
•• Guest panel led by Yvette Guest panel led by Yvette
Cooper MPCooper MP
•• Navigation Warehouse, Navigation Warehouse,
WakefieldWakefield
•• FREE to attendFREE to attend
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EventsEvents
�� Wakefield Goes to MIPIMWakefield Goes to MIPIM•• 1616thth –– 1919thth March, CannesMarch, Cannes
•• Part of the Leeds City Part of the Leeds City Region exhibition Region exhibition
•• Promoting the Region as a Promoting the Region as a location for investmentlocation for investment
•• Guest speaker: Sir Bob Guest speaker: Sir Bob KerslakeKerslake, Chief Executive , Chief Executive of the Homes and of the Homes and Communities AgencyCommunities Agency
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welcomes
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Nick ParsonsNick Parsons
Head of Markets StrategyHead of Markets Strategy
National Australia Bank LtdNational Australia Bank Ltd
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Outlook for the UK Economy:
No return to boom from bust
’A Presentation for Yorkshire Bank & First Friday, Wakefield’
Nick Parsons
Head of Markets Strategy, Wholesale Markets, UK
National Australia Bank,
March 5th 2010
The Global Context
Global economic growth enjoyed a 5 year boom from 2002-06
Source: IMF WEO
0
1
2
3
4
5
6
1986 1990 1994 1998 2002 2006 2010
Annual percentage change
● From 1986-2006, the global economy grew on average around 3.4% per annum
● Beginning in 2002, growth accelerated and reached a high of 5.1% in 2005.
● The slowdown in 2008 took growth closer to its long-term average.
Average
1980-2006
Global economic growth collapsed in 2009
Source: IMF WEO
0
1
2
3
4
5
6
1986 1990 1994 1998 2002 2006 2010
Annual percentage change
● Data released since the onset of the global financial crisis reveal an output decline of unprecedented
speed, scale and regional synchronisation for the post-war period.
● Industrial production declined by over 15% from Q3 2008 to Q2 2009.
● Synchronized downturn seen across OECD and emerging market economies.
Global economic growth set to rebound in 2010
Source: IMF WEO, NAB
0
1
2
3
4
5
6
1986 1990 1994 1998 2002 2006 2010
Annual percentage change
Forecast 2010
● Massive co-ordinated programme of fiscal and monetary stimulus will bring a return to growth in 2010
● Though the rebound is impressive, actual growth rate will still be below average of last 25 years.
● Recovery will be led by China and Asia with those Western economies most reliant on debt-financed
consumption still struggling to gain traction from domestic demand.
Sharp G10 slowdown in 2009 but growth now picking up across the world
● China and India grew strongly despite global downturn. Without their contribution, world economy would
have shrunk more than 2% in 2009
● Massive fiscal and monetary policy stimulus will see global growth return in 2010
● By 2011, global economic growth should be back to the average of the last 25 years.
Source: National Australia Bank
45.45.2Latin America
2.9 -1.3 3.2 3.54.95.0World
7.5 5.6 6.2 6.29.29.9India
9.5 8.2 9.0 9.011.811.0China
0.0 -1.6 2.3 3.33.22.0New Zealand
2.4 0.5 2.3 3.74.02.5Australia
0.4 -2.7 1.8 2.52.73.1Canada
0.5 -3.9 1.2 1.52.62.9eurozone
0.8 -4.3 0.9 2.53.02.9UK
2.42.1Japan
0.5 -2.7 2.1 2.52.02.8US
2010(f)2009(f)200820072006Annual average
4.1 -2.0 3.4 3.85.45.2Latin America
World
9.29.9India
11.811.0China
3.22.0New Zealand
4.02.5Australia
2.73.1Canada
2.62.9eurozone
3.02.9UK
-1.2 -5.3 1.6 2.12.42.1Japan
2.02.8US
2010(f)2009(f)20072006Annual average 2011(f)
Our forecasts for the UK economic recovery in
2010
The long run of continuous UK growth came to a dramatic end in 2008
● The UK enjoyed 63 consecutive quarters of growth which came to an end in Q2 2008.
● The economy then suffered 6 consecutive quarters of negative growth; making it the longest recession in the post-War period.
● Latest figures released February 26th show the economy grew +0.3% in Q4 2009, meaning the
recession has technically ended.
Source: Datastream
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
-2.50
-2.00
-1.50
-1.00
-0.50
0
0.50
1.00
1.50
Export and output-led Debt and property-led
-3.00
Total loss of output worse than either of the last two recessions
● In 1979-81, output fell 4.9%. In 1990-92 it fell 2.5% and in 2008-09 it has fallen 6.0%.
● Six consecutive quarters of falling output make 2008-09 the longest and deepest post-War recession.
● We believe (and hope) the UK economy may now have hit bottom.
Source: Datastream
-7
-6
-5
-4
-3
-2
-1
0
1 2 3 4 5 6 7 80
December 1979
June 1990
March 2008
Post-recession recovery will be weaker than last two occasions
● In the first six quarters from 1981, output rose 3.1%. In 1992 it rose 2.0% and from end-2009 we expect an increase of just 1.7%
● So, after the deepest and longest recession, we now expect a weaker recovery than either of the last two.
Source: Datastream
1981
1992
2009
0
0.5
1
1.5
2
2.5
3
3.5
1 2 3 4 5 60
The shape of UK economic recovery 2009-10
Q1 2009 -2.6%
Q2 -0.6%
Q3 -0.3%
Q4 +0.3%
Q1 2010 +0.2%
Q2 +0.2%
Q3 +0.4%
Q4 +0.4%
A comparison of the last three UK recessions
● The latter stages of both previous recession have been characterised by a mix of positive and negative growth.
● In 1990-92, growth moved negative after what initially looked like recovery
Source: Datastream/NAB
-3
-2
-1
0
1
2
1 2 3 4 5 6 7 8 9 10 11 12
December 1979
June 1990
March 2008
Risks around the central forecast
● The risk profile around the central forecast is pretty symmetrical, but this is mostly because the forecast itself is so weak.
● Upside risks centre on UK export performance and corporate profitability driving business investment
● Downside risks centre on weak consumption, the ongoing impact of the credit crunch on loan availability
and a rapid fiscal adjustment
Source: Datastream/NAB
-3
-2
-1
0
1
2
1 2 3 4 5 6 7 8 9 10 11 12
Even the sharp rebound predicted by HMT will not close trend GDP gap
● The blue line shows where the economy would be if it grew at the ‘old’ trend rate of 2.75% per year
● Recession lasted 6 quarters, but the UK actually ‘lost’ 2 ½ years of output
● On HM Treasury forecasts, growth will not reach previous trend level over the next 10 years
● We assume the trend rate of growth has slipped to around 2.0 -2.25% but fiscal and monetary stimulus
will allow the top end of this range to be achieved.
100
110
120
130
140
150
160
170
180
190
00 02 04 06 08 10 12 14 16 18 20
2.75% trend
Actual + Treasury
Actual + NAB
UK Household debt is the highest in the world
● UK household debt is highest in the world and also the highest in history
● Debt to income ratio is more than double Italy’s and more than 50% higher than France and Germany
Source: IMF WEO
0
50
100
150
200
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
France Germany
Italy Japan
United Kingdom United States
Household debt as a percentage of disposable
income %
UK’s reliance on wholesale markets
● Bank of England data on household and non-financial corporation deposit holdings and lending,
including lending to individuals shows the widening gap that has until recently been reliant upon
wholesale funding. This grew GBP150bn in 1996 to over GBP800bn.
● Money market paralysis rendered this borrowing impossible – hence the credit crunch
Source: Bank of England, NAB
-900
-800
-700
-600
-500
-400
-300
-200
-100
096 97 98 99 00 01 02 03 04 05 06 07 08
UK funding gap between customer deposits and loans which has up to now relied on wholesale markets
GBP bn
09 10
UK’s reliance on wholesale markets
● Bank of England data on household and non-financial corporation deposit holdings and lending,
including lending to individuals shows the widening gap that has until recently been reliant upon
wholesale funding. This grew from GBP150bn in 1996 to over GBP800bn and stands today at £319bn
● Money market paralysis rendered this borrowing impossible – hence the credit crunch
Source: Bank of England, NAB
-900
-800
-700
-600
-500
-400
-300
-200
-100
096 97 98 99 00 01 02 03 04 05 06 07 08
UK funding gap between customer deposits and loans which has up to now relied on wholesale markets
GBP bn
09 10
QE 200bn
UK’s reliance on wholesale markets
● Bank of England data on household and non-financial corporation deposit holdings and lending,
including lending to individuals shows the widening gap that has until recently been reliant upon
wholesale funding. This grew from GBP150bn in 1996 to over GBP800bn and stands today at £319bn
● Money market paralysis rendered this borrowing impossible – hence the credit crunch
Source: Bank of England, NAB
-900
-800
-700
-600
-500
-400
-300
-200
-100
096 97 98 99 00 01 02 03 04 05 06 07 08
UK funding gap between customer deposits and loans which has up to now relied on wholesale markets
GBP bn
09 10
QE 200bn
SLS 185bn
UK’s reliance on wholesale markets
● Bank of England data on household and non-financial corporation deposit holdings and lending,
including lending to individuals shows the widening gap that has until recently been reliant upon
wholesale funding. This grew from GBP150bn in 1996 to over GBP800bn and stands today at £319bn
● Money market paralysis rendered this borrowing impossible – hence the credit crunch
Source: Bank of England, NAB
-900
-800
-700
-600
-500
-400
-300
-200
-100
096 97 98 99 00 01 02 03 04 05 06 07 08
UK funding gap between customer deposits and loans which has up to now relied on wholesale markets
GBP bn
09 10
QE 200bn
CGS 94bn
SLS 185bn
The UK Official Budget Forecasts
HMT Economic forecasts for the next 3 years
● GDP forecast for 2009 has been revised down substantially and is now -4.75%; the worst in any year since the Great Depression
● 2010 forecast is not too far different from ourselves or the consensus estimate
● 2011 forecast might just be achievable, but in our view looks extremely optimistic.
HMT forecasts for public sector borrowing (PSBR)
● Despite worries over the scale of net borrowing, the PBR forecasts are almost exactly unchanged from the 2009 Budget
● Total borrowing over the next 5 years is projected to increase by a staggering £706bn.
HMT forecasts for debt and deficits as a percentage of GDP
● Government borrowing is expected to reach 12.6% of GDP in 2009-10, falling to 4.4% by 2014 -15
● The total stock of government debt is forecast to keep growing from 44.0% in 2008-09 to 77.7% in 2014-
15.
HMT economic forecasts behind projections for public finances
● Forecasts for 2011 and 2012 are optimistic but not impossible.
● However, forecasts for 2013 and beyond assume not only that the trend rate of growth is left unchanged
at 2.75% despite the financial crisis, but that the UK economy grows 0.5% above this level.
● This looks to us highly implausible.
UK National Debt (Gross Liabilities of the National Loan Fund)
● Total UK debt currently stands around £700bbn.
● UK GDP is around £1,400bn.
0
200
400
600
800
1000
1945 1955 1965 1975 1985 1995 2005 2015
Forecast for UK National Debt (Gross Liabilities of the National Loan Fund)
● Total UK debt will more than double in the next 5 years, even if Treasury projections for GDP growth
prove correct.
● This staggering increase in debt has caused S+P to shift it’s rating on UK to “AAA outlook negative”
0
200
400
600
800
1000
1945 1955 1965 1975 1985 1995 2005 2015
1200
1400
Implications of possible sovereign downgrade
Threat of downgrade increases the need for a deficit reduction programme
● A sovereign downgrade would raise the cost of government borrowing and pressure the currency; threatening a vicious circle of rising interest rates and a falling pound.
● There is thus a requirement for a credible medium-term deficit reduction plan which goes beyond “crossing fingers and hoping for growth”
● At its most basic, this will involve raising revenues and reducing government expenditures.
● On the revenue side this means increasing the tax take, both direct and indirect.
● Revenue raising alone cannot make a meaningful impact on the deficit. A 1pc increase in
income tax raises £4bn. A 1pc increase in employees National Insurance raises £4bn. A 1pc increase in employers National Insurance raises £5bn. A 1pc increase in VAT raises £5bn.
● On expenditure, the next Government will need to rein back the growth in spending which has risen in real terms by 3% per annum over the past decade.
● Total Government expenditure in fiscal year 2009-10 is £671bn.
49
UK and US fiscal deficits blow out
% of GDP
-13 .5
-11 .5
-9 .5
-7 .5
-5 .5
-3 .5
-1 .5
0 .5
2 .5
avg 93 -02 2008 2009 2010
US
UK
EMU
CAD
AUDNZ
CHF
Forecasts
Source: IMF, National Australia Bank
49
50
10 year European sovereign bond yields
● Greek 10 year bonds now yield 6.59%; 340bp over comparable German bonds
● Germany is trading at 3.19%
● Six months ago, the spread between highest and lowest was just 167bp but market has now become far
more discriminating. Portugal has widened significantly over the last week.
Germany
Portugal
Ireland
UKFrance
Greece
Source: Datastream
2
3
4
5
6
7
8
Aug 09 Sep Oct Nov Dec Jan 10
Conclusions
Debt reduction will be a painful experience
Other than default, there are two ways to reduce debt:
● Cut expenditure, raise taxes and create structural surpluses.
– De-leveraging in the banking system feeds through to households then corporates.
– With tax revenues falling, government cuts expenditure leading to ‘debt deflation.’
● Decrease the real value of debt through hyperinflation
– Weimar Republic, Zimbabwe show the costs of this.
The UK has experienced three major accumulations and run-downs of government debt in its history.
● From 1795 to 1882 debt peaked at 185% of GDP then down to 30% by 1914.
– Sharp cuts in military expenditure combined with healthy growth helped generate surpluses.
● From 1913 to 1933 debt rose to 178% of GDP then down to 141% by 1938.
– Debt reduction was slow and limited because growth was weak. Abandonment of Gold Standard allowed the pound to depreciate, reducing real interest rates through inflation spurring growth.
● From 1938 to 1946 debt rose to 252% of GDP then down to 43% by 1980.
– Debt reduction was rapid die to austerity measures in 1950s and then inflation. But growth quality was poor.
Conclusions
● The UK economy has just suffered its worst post-War recession, with GDP falling a cumulative -6.0%.
● Official and survey data show the economy deteriorated at a slower pace in Q2 and Q3 then grew +0.3% in Q4, allowing the recession to be declared over.
● We expect only a very modest recovery in 2010. Indeed, growth in the whole of 2010 is likely to be only 0.9% and the average rate compared with 2009 will be only +0.5%.
● On HM Treasury forecasts, government borrowing is set to increase by £703bn over the next 5 years.
● Global economic recovery and massive UK public deficit will put upward pressure on interest rates and bond yields in the absence of any credible deficit reduction plan. This does not have to be immediately implemented but it does need to be formulated.
● The Bank of England may cut the interest rate paid on commercial bank reserves (currently 0.5%) in an attempt to stimulate lending and to maintain downward pressure on interest rates.
● The fall in sterling means that UK manufacturers have rapidly regained competitiveness, but an absence of overseas demand is still holding back output.
● The new trend of rate growth for the UK economy is likely to be 2.0 - 2.25%; almost half a percentage point lower than the average over the past decade.
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Q & AQ & A
Mohan de SilvaMohan de Silva
Chief ExecutiveChief Executive
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Margaret WoodMargaret Wood
ChairChair
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