UK Sector Tracker

The UK Sector Tracker delivers monthly proprietary insights into the evolving trajectory of the UK economy and its key sectors.

Read the latest report (PDF, 1.79MB)opens in new tab

The UK Sector Tracker delivers proprietary insights into the evolving trajectory of the UK economy and its key sectors. 

The combined ‘macro’ view and more granular sector-level analyses provides a comprehensive assessment of the economic backdrop and outlook, and how this may affect your business going forward.  

Utilising the highly regarded S&P Global PMIs, the report delves into the trends in key themes such as growth, confidence, business demand, the employment environment and inflation. 

There are broad global and national insights, and a wide range of sectors covered, including: Automobiles & Auto Parts, Banks, Chemicals, Food & Drink, Healthcare, Household Products, Industrial Goods, Industrial Services, Metals & Mining, Real Estate, Software & Services, Technology Equipment, Tourism & Recreation and Transportation.   

Economic Pulse – Live event replay video

Economic Pulse – Live event replay

Listen to our experts Dr Lindsay Newman, Jeavon Lolay and Zahra Sadry discuss the latest sector trends from the UK Sector tracker and explore some of the key challenges facing business. 

  • Economic Insight Event

    20 May 2022

    Zahra  [00:07]

    Good morning and a really warm welcome to Lloyds Bank's economic pulse live event. This is the first in a series following the release of Lloyds Bank's UK sector tracker report, this AM, hot off the press. I'm delighted to be joined by Dr Lindsay Newman, a Director in the global political research at S&P Global Market Intelligence, and our own Jeavon Lolay our own Head of Economics and Market Insight at Lloyds Bank. And I'm Zahra Sadry, and I lead our Consumer and Tech Coverage team at Lloyds. Over the next 45 minutes, we're going to take the opportunity to hear from Jeavon to talk us through our UK sector tracker report. And some of the findings from that. Lindsay and I are going to discuss some of the geopolitical and other themes that are at the forefront of mind for businesses currently. We're going to take some time for Q&A and there should be a button on the right of your screen where you can input questions; feel free to type them in as they come to you. We'll be delighted to pick those up at the end of the session. So without further ado, I'm going to hand over to Jeavon and ask him to take us through the report and some of its findings.

    Jeavon  [01:23]

    Thanks Zahra, and good morning, everyone. This is the first edition of the new Lloyds Bank sector tracker; I think it's worth saying a few words about our aims and the methodology we're using in this report. The UK sector tracker itself is the evolution of our popular UK recovery tracker report. We started after the first lockdown in 2020. We realised then that the impact and the unprecedented nature of the pulse response to contain the actual virus was going to need to sit quite stark sectoral divergences and the initial impact, and the recovery phase was going to be very different from the pandemic. Working together with IHS market, now S&P Global, we wanted to produce some timely insight on both the key global trends, but also the key specific effects across the UK sectors during the pandemic. The core methodology that we used in the report leverages the highly regarded PMI data, which is derived from monthly surveys of senior executives across private sector companies. But we just went a little bit deeper. For the UK, to provide some sector level insights for the first time in key areas such as output, employment, prices, just to give more of a flavour about that divergence. We're very sure that this report and the insight provides is going to provide a better understanding of the trends, risks and opportunities facing businesses. Moving on to the key findings for this month, I will spend the next 10 minutes on this. But I have to say it's going to be a high-level taster really, because there is so much content within this report, I would encourage you to download the report or get a PDF copy from one of our colleagues because it's extremely rich in terms of its content. But I'm going to give you just the high-level summary. The first topic we focus on is global growth. What I want to demonstrate, and we can see on the screen is- what are the key advantages of using PMI survey data is the simplicity of understanding the results. So, put simply, the survey respondents are asked to compare the current situation they are in now with the previous month. And they can select either higher or lower or no change for a range of variables. This results in an index number between naught and 100. If everybody said it was higher, we'd be 100. If everybody said it was lower, it would be zero. And therefore, if it's above 50, it means an overall increase compared to the previous month. And if it's below 50, it means an overall decrease. So what this first chart shows you is that clearly events in Russia and China are weighing on the global economic environment, and specifically on in the economic environment in these countries. So both these countries, Russia and China are below the key 50 level, which would suggest unchanged output. So basically output is falling or declining in these countries. And when all the other countries you can see on screen, where we monitor our indices above 50, they're reported output growth is higher relative to March, it is quite telling that the index for the world as a whole if you look at that, that in the green spot there has shifted a little bit to the left of centre. And what that means is that well growth is still above the key 50 level. Global growth momentum is slowly relative to the pace last month. And if you look at the UK, also this has moved left to centre. What this tells you then is also our headline index is still relatively high. So we've still got stronger growth than many other countries, but it's also suggesting that we are slowing. The second slide, if we can move to that- this demonstrates the rich insight provided by the sector tracker. So for the UK, we can now use the same basis as a headline index for the country just presented a few minutes ago to show how the different sectors of the economy are performing. What you can see here from let's say, the dark green bars on the first chart on the left, is that 11 out of 14 sectors that we cover, reported overall output growth in April. But you can also see this is quite diverse across sectors. So it just tells you that the economy is still growing, as I mentioned, but there are some sectors not growing, some going a lot faster, and some not doing so well. Also, if you compare it with the light green bars, and that's the data we saw for March, you can see only six of the sectors in the UK reported faster output growth than they did in March, again, signalling that the pace of output growth is slowing. And in this case, for 8 out of 14 sectors, they saw slower growth in April to March than they saw from March to February. The chart on the right represents firms views in relation to their growth prospects for the next 12 months. So how do you feel about your prospects in 12 months’ time? And it's worth highlighting here that all the sectors are above the key 50 level, which suggests that there's an expectation for overall output growth, despite as we know, the growing headwinds facing the consumer. What I find particularly interesting in this chart, is that the sectors that feel the most confident at the top in terms of prospects for next year, was five months ahead of those that are currently experiencing or have mentioned, the most issues with supply chains, and shortages. So what that tells me is that what happens in Ukraine, and what happens in China, is still clearly going to have a significant bearing on UK prospects and sector prospects in general. The next section of the report, we then move to get to move to the next slide. The next section will probably look at the supply capacity of the sectors. So basically, we've spoken about demand, but what's the ability for the sectors to actually meet that demand. And in the report, we specifically focused on two key areas this month. Firstly, on the left, we looked at what a company is doing in terms of inventories and basically stock levels. And this is key because it gives you understanding about security of supply and concerns about prices for materials. And what it shows you is that the level of 6.7 times the long-term average in terms of companies reporting that they are increasing their inventories. And so it shows there's still a lot of concern about supply and the availability of supply. The chart on the right highlights another key theme in the UK at the moment, which is the labour market. And what I want to really get across here is that if you look at the dark green lines, that’s basically demand for labour- have you increased your headcount over the previous month? And this chart shows that 13 out of 14 sectors added to their headcount in April. And this is really strong, when you think about the context of how tight the UK labour market is. And even if you look at the one sector that didn't in terms of transportation, which was the outlier, this was largely because it was struggling to actually replace staff, rather than demand for staff. So again, it's another indicator that the UK labour market is tight, and firms are really facing pressures in recruitment. The other sections of the report cover topical areas like inflation, prices, margins. Our analysis shows that while input output prices are rising across all sectors, the ability to pass on and protect margins is very differentiated. There's also a section on trade, which includes a new export climate index for the UK, which will help you understand the changing external demand conditions for UK exporters. And finally, this month, we've also included a special feature on tourism and recreation, just to help understand how the most sensitive to the pandemic sector has been performing, as the economy reopens. I hope that gives you a flavour of the rich insight available in this report. But as I said, please try and download the report or ask for a copy because there's an awful lot of data and detail that we think you'll find extremely useful. Thank you for listening back to you Zahra.

    [Zahra  09:12]

    Thank you Jeavon. Lots to digest there. And I'm sure there'll be some questions on that for you when we head to the Q&A session. So now I'm really looking forward at Lindsay, to bring you into the conversation and to get your perspective on some of these themes. So let me kick off with Russia, Ukraine, it's on everyone's minds clearly. Help us understand the current dynamics there, and the near-term outlook from your perspective.

    Lindsay [09:39]

    Well, first, thank you for including me in today's discussion. Jeavon, surely, some of my remarks will very much overlap with what you've already presented for us that's in the report. But Russia's regional ambitions represented a long standing and open test. We always knew that Putin had ambitions for his neighbourhood, we just did not know when these we're going to hit and jockey for attention. Yet since we watched Russian military personnel and assets accumulate at the border before 24th Feb and then crossover into it on 24 Feb. Europe security environment, Ukraine and Russia's economic outlook, as we've already started to hear about the stability of markets have all been thrown into the air and are in the process of re-shuffling. The invasion of Ukraine, though, has also I would say, hastened a confrontation or a conversation with a host of geopolitical risks that we also knew were out there, needing resolution in a post Afghanistan, post Brexit, post Trump world. And I'm thinking here of everything from supply chain vulnerability, insecurity that Jeavon has touched on, to global security partnerships, global financial integration, and migration. These are no longer simmering in the background, giving us time to recover from a pandemic. But they're in fact demanding attention now. And so, I want to talk about first, the near-term picture. The conflict outlook if we just zoom into that, we continue to think that we will be on an escalatory pathway for several months ahead. With Russia now focused in eastern Ukraine and looking to really focus in on gaining control over the Donbass region. We saw this week, for example, that it seems as though Mariupol, a key port city on the Sea of Azov has perhaps seemingly fallen to Russia, is now within Russian control. And while we see further escalation ahead, it's important to note that we continue, given current indicators to things that the conduct will remain constrained to Ukraine. But Ukraine's ability to withstand the ongoing Russian invasion, the ongoing Russian offensive well, of course, as has already been, very heavily dependent on Western resupply of military and defensive assets. On the economic side, which Jeavon has already touched upon for us a bit, in addition to these near-term security impacts, the invasion has really shifted the economic landscape. And that's not as we've already seen, just for Ukraine and Russia, but it has global spill over. So the February purchasing managers index that Jeavon already referred to, that was conducted pre innovation, and it was showing signs of optimism. But our latest PMI, as we've already seen on the on the screen, it fell to its lowest level since June 2020 for global for the global outlook, a deterioration off the back of stalled output and the surging prices. For Russia, it's the imposition of sanctions, export controls, and then this fall one wave of corporate self-sanctions that we all watch take place pretty early on in February and March. That's having a real impact on globally isolating Russia. And for Ukraine, it's much more about the actual physical infrastructure of destruction and damage as well as recently we're seeing these foreclosures, it's having a catastrophic impact on Ukraine's economic outlook for the year ahead. And of course, this has global spill over, and this global spill over is not just these direct effects that I that I'm talking about for Russia, Ukraine, but also working through these channels of global supply chain disruption, and commodity price volatility. One of our purchasing colleagues has called this The Everything rally, because prices across metals across agricultural costs, across energy are, really at peak levels. And none of us can avoid the headlines around inflation, which we now have, month on month of it since the invasion increased our outlook for global consumer price inflation. The latest figure for 2022 is 6.7%, which is the highest level of inflation since 1995. So, we think, just to put a finer point on it, we think the takeaway here is that success and taming inflation and averting a global recession will depend on supply resilience, everything from labour force participation to investment in increased production to trade agreements. Of course, these things take time. And then on the other side, how we balance demand. And it's early. It's very early, but we're starting to see indicators that some of the monetary policy that's being put in place, for example, in the US is having an impact on moderating demand.

    Zahra [14:44]

    Thank you, Lindsay, for that. Maybe just to come up further on to that, not just talking about some of that demand, some of that geopolitical risk but what else do you think we should be watching and keeping an eye on out there?

    Lindsay [14:59]

    Thank you, Zahra. I mean, even as I said at the start, there's the near-term security and economic outlook. But even if the conflict were to end today, and it's not going to end today, sadly, but even if it were to end today, we really have to be thinking in our minds that we would not be unwinding to pre-invasion status quo. Alongside these near-term risks sit a host of longer strategic challenges, that we will now be, very much wrestling with and these look like the Global Security Outlook. I'm thinking here of everything from the global political order to global security alliances and cyber risk. So, what happens with NATO? Does the G-20 end up expelling Russia ahead of the November Summit? We think no. Also the future of global financial integration, which Russia is becoming increasingly isolated from- this covers everything from sanctions to decoupling regionalization- that forever question conversation around globalisation, supply chain vulnerabilities, which Jeavon already took us through, which is disruption to commodity supply, our energy supply chains, the future of the energy transition, and as I said, at the start- migration, which is something we're watching quite closely, because while we're all seeing the numbers, something like 6 million have already fled Ukraine, 7 million internally displaced, this is going to have a longer term impact for labour markets, for policy, for supply chains, for cargo disruption, for border controls, how does the international community manage a refugee crisis at the centre of Europe, it's to be determined. So we're all hearing a lot about how the world is becoming more fragmented, how the world is, becoming more divided. But it's important to remember that these challenges are interlinked. So, we expect in fact that the global political system is going to become more fluid, more flexible, with countries looking to cooperate within spheres of mutual interest thinking here of, climate change, the energy transition agenda, which we all face, and then are going to contest across spheres of national interest. And that's going to look like critical minerals and sanctions and de-dollarization. And dollar supremacy. But I wonder, Zahra turning it back on you, what are the themes that you're hearing from clients?

    Zahra [17:22]

    No, look, Lindsay I think it is on really similar themes. And when I when I think back a little bit, bigger picture, a number of our clients have clearly been navigating a pretty challenging period over the last couple of years with COVID already and facing changing consumer demand, supply chain disruption. Some of those themes that obviously we're also going to be saying, perhaps in a slightly different guise, but are still going to be very prevalent as we move forwards. And I think now it's accentuated clearly, as we think both about supply and demand side pressures, we're seeing clearly inflation at a 40 year high of 9% levels in April, increased costs across the board, as you've said, energy commodities, raw materials, labour, labour shortages, also as Jeavon referred to in terms of the tight labour market. And I think we're seeing the data starting to come through now. Just this morning, the UK Consumer Confidence Index has fallen to -14. And that's the lowest actually since records began. And I think all of this is giving a really sharpened focus on costs for businesses. Ordinarily, they would seek to try and pass some of these pressures and some of these cost pressures through on to the consumer. And now I think they're increasingly thoughtful about the cost-of-living crisis, the ability of consumers to absorb those costs. And if they do so, does that further negatively impact consumer demand and consumer confidence as well? And I think we're starting to see it in our own data here at Lloyds. Household spending is starting to drop. It's early days, there's a very mixed picture, the watchword clearly is in divergence, which I think Jeavon has alluded to as well. So mixed picture across households, across businesses and categories. But I think it's becoming increasingly critical for businesses to understand the profile of their customers. As they think about navigating what can they absorb, and what can they pass on? I would say we're also seeing as part of that cost picture, but an acceleration of some trends that were already there, automation, robotics, thinking about self-help and ways to mitigate those costs and protect their margins and increased investment. So, willingness to invest in that, despite the uncertain backdrop. And I think the other thing that we're seeing more of is clients thinking about risk management really and a heightened focus on that. How do they position their businesses for an increased period of volatility? There's an increasing sense and you refer to it that this won't just be a temporary dislocation or impact but this will be with us for a while and we'll we're needing to be thinking about that. And so we're seeing a greater number of clients who are hedging, for example, at interest rate risks, thinking about how to manage inflation risks, hedging their commodities, and those who are perhaps already doing so thinking about how to lock that in for a longer period of time to have as much certainty as possible in that in that landscape. One of the things I'm keen to touch base on with you, because it's a priority for us, and it's a priority for many of our clients is the theme of ESG. And I wondering what you're thinking about the conflict and the impact of the shifting geopolitical space? And what that means for ESG considerations?

    Lindsay [20:41]

    It’s a big one. I mean, there's no doubt that ESG is a big topic that we'll all be tackling. What if I take a step back? I would say that, over the medium to long term, we believe that the geopolitical landscape and climate goals will align. However, in the near term, the Russia-Ukraine conflict really has raised the trade-off between the energy transition agenda on the one hand, and energy security priorities on the other. Countries are now facing a balancing act between the very immediate energy and food needs, and the existential climate threat, and not all have the resources to invest simultaneously. So we think, and we expect to see a widening gap between those that can accelerate energy transitions and those that will be less well positioned to do so. And there's a couple of parts of the story. On the one part of the story is political willingness. After COP26 there was clearly momentum driving global buy in for Net Zero commitments and the 1.5-degree containment of warming. Yet since the conflict has begun, we've heard national officials talking about reinvesting in traditional energy sources, and even a return to coal. So while we expect Climate Leaders in Europe, which just announced this week, the EU plan to disengage from Russian energy assets and to speed up the green transition. So while we expect Europe, the US and APAC as well, which is particularly vulnerable to climate change, as we just saw, with the heatwave in India- to remain committed to energy transition, and energy diversification, for others, energy security has just leapt to the top of the priority list, leapt to the top of the agenda. So in addition to the political willingness part of the story, there's also then a resourcing part of the story, a financing part of this story. And, the conflict has, as we've already talked about today, represented a new series of economic shocks on top of a pandemic- economic shock, supply chain shocks. And so we're seeing in the inflationary pressure market volatility, a country's ability to navigate those challenges intersects with their ability to resource the energy transition. And we have to remember, there's already been a broad conversation around climate financing. There's this commitment to an annual commitment of 100 billion for the emerging economies around climate supporting climate and energy transitions. That's a target that's been on the books for years, and never been met. And where do we go from here with that? Where does the financing- where does the money come from? And it's quite telling, it's quite interesting as we see, for example, the US Congress, the Senate just yesterday said to President Biden- 40 billion in additional funding for Ukraine, while the US chips for the America Act, an act that's intended to protect and invest in the US semiconductor supply chain key. Of course, the energy transition that Bill has been toiling away at is moving at a snail's pace in Congress for multiple years. And then a final piece of the puzzle, I think is about reputational risks and around business risks. So, prospects for Russia sanctions, what the story is, there will of course, be very much tied to conflict, the trajectory of the conflict, when sanctions are removed, and what timescale, which ones and then who returns into Russia is very much an unknown. It's a key unknown, but it's really not just about Russia, because we're seeing that the conflict is amplified, a conversation around who our partners are, it's not a new conversation, but it's really amplified, a recalibration. Six months ago, just to give an example, the idea that for example, Germany would have scuppered the Nord Stream too or the idea that Europe would be seriously considering an oil embargo on Russian energy assets, that would have been dismissed if we were sitting here six months ago. So, there has been a sea change and it doesn't just hit Russia. It's hitting global, and I think this recalibration is likely to drive further activism. This activism is going to look like climate activism. It's going to look like targeting of local projects. But it's also going to look like urban protests, or protests across urban centres that we've already been seeing, in Europe and elsewhere. So I think that's our picture. And I would just ask you, Zahra, are you seeing change in approach? Any recalibration in how your clients are viewing ESG?

    Zahra  [25:49]

    That’s a really interesting question Lindsay and, we've been curious to see whether there would be an impact to that increase. Speaking for, I guess, my client base more specifically, it's actually been quite heartening to see that it's really remaining at the top of their agenda, and there doesn't appear to be thinking that it will be sacrificed. In the short term, in order to deal with some of these challenges that we've been talking about, what's been really heartening to see is that businesses are thinking about these challenges and the opportunities that they also present, perhaps, to them to drive that ESG agenda further forward. And I'll give you some examples of that, when we think about some of the food retailers that we're working with, they're thinking and looking much further down their supply chains than ever before to some of the tier 2/3/4 suppliers, right down to the end- farmer. And they're thinking at the moment about how do they support them, not just with the investment support required to meet the increased cost of production that those farmers are facing, but also, for example, how can they help with the investment to aid the transition to a low carbon economy? What does that look like, for those farmers and their businesses as well. I think the other thing that we've been seeing, particularly with this whole cost of living crisis, that's been obviously very widely talked about is the sharpening focus on the S side of ESG. And the social elements of it. We're seeing a number of retailers thinking about paying their staff, the real living wage, and then very thoughtful about the impact that the coming challenges are going to have on their own staff and the communities that they operate within as well. So, I think really heartening to see at the moment that it still stays top of the agenda, but no question. It's going to be an interesting period to come in terms of how that gets navigated, and balanced. Lindsay, maybe I'll bring us on to the final question for you before we move to Q&A. And of course, there is a lot of focus, rightly so on the conflict here in Europe, but the world does go on elsewhere. And as we look beyond Russia and Ukraine and look ahead, what would be the things that you would flag to us?

    Lindsay [28:03]

    Very rightly so Zahra that the world does go on and on while we're all focused on Russia, Ukraine, there's other places to look. What I would touch upon is the food security story, which is currently coming out of Russia- Ukraine, but it has the potential to be I think, globally impactful. We're starting to see conversation around it with the UN sessions this week. But, if we look at the data, what we know is that Russia and Ukraine together, they account for only about 2% of the global economy and 2021. But they play an outsized role in the global food supply chain. So we're talking here about wheat, corn, sunflower oil, and of course, fertiliser for scale. Ukraine alone accounted for 12.8% of global corn supply in 2021, and 10.5% of global wheat supply—and that's to the EU. But those grains are going not just to the EU, they're also going further afield to China, Middle East, North Africa. And what has the conflict done? Well, what it's done is that most of Ukrainian exports are now they have been conducted through the Black and Azov seas and those ports are being blocked, and our maritime and trading team, their current assumption that they're operating with for 2022 is there's going to be no grain leaving Ukraine for 2022. It’s clearly causing a surge in grain prices. And it's potentially with a multiyear story, because it's currently sowing season there. So how do you- there's no possibility of replanting in Ukraine at the moment. This is a multiyear story that's going to have disruption to the global food supply chain. We were already seeing unrest globally, in Sri Lanka and elsewhere, and this is going to exacerbate that as we've seen in times past with food riots, bread riots etc. We have two new reports on that, looking at how it's impacting the Middle East, North Africa regions in particular. Another story I would highlight of course, which you've already alluded to is about the COVID lockdown story in China massive story. As Jeavon said, it's hitting not just output and supply global supply, but we're increasingly seeing how it's the dynamic clearance policy, which is not a zero-tolerance policy, but the dynamic clearance policy is driving down demand. They just published their retail figures and retail figures for last month are down. And we're looking at revising down our forecast as well. So we just have to remember all of this is coming against the backdrop of a very important political year for China domestically, we have the upcoming national congress for the Communist Party that must be held by the end of the year. President Xi is pursuing an unprecedented third term. At the start of the year, the political support seemed quite clear, but current indicators suggests that prospects are a little bit narrowing. And, more limited than at the start of the year, but there's still time for that all to smooth out. A couple of last things to flag is of course, there's key elections elsewhere. We're looking at Brazil, where current president Bolsonaro faces a race against former President Lula. It's a race that's tightening but at the moment, Lula has continued to show a sizable lead and pulling attention there. We think if President Lula wins that race, that the privatisation policy that we've been seeing is likely to be halted. Less concern about nationalisations, though or contract revisions. And then just to wrap up, as I always say, there's always an election in the US. So we have midterms elections in November, they will obviously be key to watch as we look ahead to the even more important elections in 2024. But for this fall, we have every house seat up for grabs in a third of the Senate. And this is all taking place against the Feds trying to stamp out on the inflationary effects, a continuingly polarised and divided electorate there. But interestingly, on foreign policy, quite committed to resource in Ukraine. So I think, I'll stop there. So we have time for questions. But as you rightly saying, there is a lot more going on in the world. It is intersected with what's happening in Russia, Ukraine, but we have to be keeping our eyes and our clients are your clients, our clients are clearly monitoring all of it.

    Zahra  [32:29]

    Well, thank you so much for those insights. There is a lot to keep us on our toes over the next little while, no doubt. But great. Well, with that, let me hand it over to Jeavon, who's going to stay with us through the Q&A process.

    Jeavon [32:47]

    Thanks, Zahra and Lindsay, that was a fascinating discussion, so many topics that you've covered there. It's now over to the audience and the Q&A. So I want to say thank you for the questions that have been posted so far. But please post any more questions you may have on the screen. I'm now going to start with the first one, which is to Lindsay. Question come through is if we go back to pre-pandemic, a topic that we received probably the most attention, a lot of attention would have been US, China. But the question is, where does this relationship stand?

    Lindsay [33:22]

    It's striking. It's absolutely right. I mean, I spent- me and my colleagues, we spent months only talking about US, China. And then of course, we had the pandemic. And here we are with Russia, Ukraine. But it is an important relationship and to continue to watch. Obviously, Biden is now the third president to attempt to pivot to Asia and to be distracted elsewhere or to have to position resources elsewhere. Obama tried it before him, obviously, Trump and the tariffs. What we know, though, is Biden is in Asia this week. I believe he's in Seoul today. And he will be in Tokyo from this weekend for an upcoming Head of State Summit. So the strategic competition with China is still to watch. For the US, it continues to be of high importance. It's the US’s Indo-Pacific strategy. But there's no doubt that the Russia Ukraine conflict is diverting resources into and taking precedent. If we look at fit from China's perspective, I just was touching on what an important political year this is for China  from a domestic standpoint. So we see China just to take a take a phrase from US foreign policy as pursuing a strategic ambiguity approach with the conflict. It will continue to provide political support, as we've already seen for Russia, but we do not see military support forthcoming. We think that's unlikely. And given the importance of this year domestically for China, a priority is to avoid any economic blowback from the conflict itself, from the US and the US as partners, like secondary sanctions imposed on China. So again, we really see it as trying to walk that fine line of political openness and support for Russia. But, not much more than that as it looks to navigate that key relationship with the US in this in this important political year.

    Jeavon [35:26]

    Right, next question. But this is another one for Lindsay. So, Finland and Sweden have applied for NATO membership. What is the outlook?

    Lindsay [35:37]

    Yes, so it's certainly another pretty big change that we've seen off the back of the Russia Ukraine conflict. In short, we have the NATO Summit coming up at the end of the end of June. We think that most NATO members will look likely to support Finland on Sweden's membership. But we have to remember that ratification requires all 30 NATO members for certainty. So we've seen some opposition from Croatia and particularly from Turkey. We think this is more about political manoeuvring and signalling at home for those countries. And, some concessions might perhaps be given around further investment, for example, for Turkey, or from the US or further agreement around defensive supplies in order to secure support for Finland and Sweden. And we ultimately think that currently that Turkey is not going to veto their session. If you look on the other side about Russia's potential response, obviously, that's also something that we need to be watching. We think the period between their applications just now and the actual obsession is a heightened risk for Russia in retaliation. That likely looks like incursions over airspace for Finland and Sweden. But ultimately, Russia is constrained militarily by the conflict the offensive in Ukraine.

    Jeavon [37:10]

    Thanks, Lindsay. And looking at the questions, I'm sure we've got time for one more hopefully. Final question I'm going to ask is actually one that's come to me, which is, basically what is the sector tracker telling you about the inflation outlook? Okay, so I think the key message in terms of the tracker and inflation outlook is that if you look at the chart, which I mentioned, which shows you prices, and the outlook for margins, what this chart is showing is that businesses are facing increased higher costs coming in, but the ability to pass these costs is getting more and more challenging. So there seems to be a lot of pent-up demand. And what we're seeing is that businesses are becoming more comfortable in passing on these costs. As the crisis, as I mentioned, as prices become more sustained as expectation that inflation is going to remain in the supply chain for longer than they thought, they become more confident as the pressure on margins is coming up. So I'd say the indications from the sector tracker is very much that inflation is likely to remain elevated for now and has the potential to pick up based on basically, as I mentioned, the labour market, and also based on what companies are saying about the ability to pass on prices and also their confidence to pass on prices. Right, so I think that draws us to an end, in terms of the Q&A section. I've been hearing that we've had some sound difficulties, I just want to apologise for that. I hope you found the session extremely interesting and the Q&A. I'm now going to hand back to Zahra for some final comments.

    Zahra  [38:46]

    Jeavon thanks for the questions. And if there are any that you didn't manage to get in, please do send them through and we'll try and answer them bilaterally for you. So, a big thank you from me again to Lindsay and to Jeavon. And thank you to all of you who've joined us, for taking the time out to do so today. Please do access the report either from your Lloyds contacts or online. And we're looking forward to the next event which will be in a couple of months when the next set of data is released. So for the time being, on behalf of us all we wish you a very good rest of your day and a good weekend when you get there. And thanks again for joining us. Bye!

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