The UK Economy : How Long, How Deep? Dennis Turner HSBC Bank plc Presentation for Best Western Hotels GB Celtic Manor, 8 th February 2010

FIRST RECESSION FOR 16 YEARS

Sustained GDP growth

BUT THE WRONG SORT OF GROWTH

Consumers the driving force

But underpinned by borrowing

The public sector has made a comeback

But government finances weakened

WHERE TO FROM HERE?

Consumers under pressure

A slower recovery than the last recession Forecast

Because record levels of personal debt,

a rising tax burden and

subdued earnings growth, hit by

rising energy and food prices

Unemployment also dampens spending

An investment-led recovery?

Robust corporate profitability

Key PMI surveys went south expansion contraction

A sluggish investment outlook Forecast

GROWTH WEAKENED

A deep recession Forecast

ALL THE LEVERS ARE BEING PULLED

Government finances already in deficit

Now deficits set to continue rising 2009 Pre-Budget Report

Investment rule no longer sustainable Sustainable Investment Rule

Net debt to soar Sustainable Investment Rule 2009 Budget

Interest rates fall to historic lows

Price pressures eased - RPIX - CPI

which created room for interest rate cuts

And sterling is sliding

Sterling takes a pounding US dollar / £ (L axis) euro / £ (R axis )

BUT………

Credit supply a drag on activity

The funding gap

Financial market turmoil is a major risk

The nuclear option used

An injection of £200bn via QE

The medicine is working

The slow thaw

Lending – a mixed picture Lending to households Lending to businesses Annualized growth in outstanding lending

Straws in the wind

De-stocking nearly over

Key PMI surveys starting to turn expansion contraction

Housing market – signs of renewed life rising falling House prices :

Recovery underway in 2010

A slow recovery is underway Forecast

Inflation to jump – but temporarily Forecast Target Range

And interest rates start to turn

But real interest rates still negative Forecast Positive real interest rates Negative real interest rates

Sterling – still opportunities for exporters Sterling weaker US dollar / £ (L axis) euro / £ (R axis) Forecast

THE POST-RECESSION AGENDA

Where will growth come from?

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