Economics Weekly - The producers

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Economics Weekly - The producers

A mixed week last week, with poor January UK numbers for much of manufacturing, construction and exports. There was more reassuring news from the housing market, which while slowing, is showing no signs of crashing. But there was curious and concerning news from the US, where retail sales unexpectedly fell sharply.

Economic Analysis

16 March 2015

Driving growth 

Britain’s car industry was the star performer in January, with output up 7%y/y. Many of these cars are bound for export markets, but domestic demand is driving this growth too. UK car registrations were also up 7% on a year earlier. This expansion easily outstripped the rest of the manufacturing sector which managed growth of just under 2%y/y. More welcome news was that oil & gas output rebounded in January after a 3%y/y fall in December.

Poor start 

Output in the UK construction sector fell 2.6%m/m in January, the fourth time it has happened in the last six months. The only type of construction that increased was the construction of factories and other industrial structures. The much watched house building sector saw activity fall by 5.1%m/m, with a whopping 18.4%m/m fall in public housing construction. Not a great start to the year.

Balancing act 

The UK trade deficit narrowed slightly in January to £0.6bn, down from £2.1bn in December. But it was not the start to the year that exporters would have been looking for. Goods exports fell by 2.3% compared with the end of last year and services only managed to squeeze out an anaemic 0.1%m/m rate of growth. The one bit of good news was that the apparent fall in services exports in 2014, which looked to be the first since 1958, was revised away. Phew!

Fading and fixing

The latest mortgage lenders' figures from the Bank of England confirmed two trends. First, the effect of Help to Buy is fading. New mortgages issued with a deposit of 10% or less fell from 5.3% of total new mortgages in Q2 2014 to 4.3% in Q4. Second, people continue to prefer to lock in a low rate now, rather than take a chance that rates might go lower still. The proportion of new mortgages issued with a fixed rate was 82%, double what it was in 2010.

The road ahead 

The latest survey from the Royal Institute of Chartered Surveyors contained some good news for homeowners. The slowdown in house price growth should come to an end in the third quarter of this year and it is unlikely that UK average house prices will fall. Even in London, where the turn in expectations has hit hardest, the expectation is that even if prices fall, it will be very mild.


For the Great American Public February was spent window shopping. Retail sales fell 0.6%m/m. They were up an unimpressive 1.7%y/y. Bad weather was the go-to villain of the piece but snow in winter is hardly new to the US and sales had also fallen in January. Whatever the reason, it’s hard to square decent overall growth, rising real wages and an almost runaway job creation train with weak retail sales. Unless Americans are saving more, something doesn’t quite add up.

Treading water 

Industrial production in the Eurozone wasn’t a positive story. Total output was up 1.2% compared to last year, but effectively flat on the month.  Amongst the big countries both Germany and France have managed growth over the last 12 months, up 1.6% and 1% respectively. But Italy is still struggling with output down 2%. The stand-out result though must be Ireland where production is almost 9% higher than it was a year ago.


Japan's economy neither grew nor shrank in 2014. So for the year as a whole, it had a tougher time than the Eurozone, which is saying something. The reason? A rise in the sales tax in the first half of the year, which meant that Japan was the only economy out of the UK, the US, the Eurozone and itself, to see household consumption fall. What stopped this from becoming worse was the resilience of investment spending, which contributed 0.6% to overall growth.

This is my last Weekly Brief 

My term as Chief Economist comes to an end on 22nd of March. It has been a pleasure and a privilege to correspond with you these past ten years. I shall miss your regular feedback and especially those occasions when we got to meet at one of our presentations. I am delighted to let you know that Stephen Boyle will succeed me.

Please accept my very best wishes for the future,



This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited.

Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the RBS Economics Department, as of this date and are subject to change without notice.

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