EEUURROOPPEEAANN IINNDDUUSSTTRRYY MMOONNIITTOORR 2013 Second Half Issue

1st October 2013

[OVERVIEW: The worst appears to be over, but too early to talk about recovery]

� The European economy in H1 2013 started to show tentative signs of recovery from the Eurozone crisis. While Southern Europe remains a main cause for concern, Northern Europe is showing signs of growing robustness, with Germany in particular appearing to be over the worst of the crisis. Nonetheless, consumer confidence remains fragile, resulting in weak discretionary spending impacting on many industrial sectors, whereas export markets appear to be recovering.

� The raw materials sector appears to be over the worst of the downturn, with prices beginning to rise following capacity closures, although demand from the construction and automotive industries, core clients of the steel industry, remains weak, and the region remains vulnerable to imports.

� The slump in manufacturing industry also appears to have bottomed out as the rate of decline in core industries has slowed, buoyed by recovering export markets, even though domestic markets such as automotives remained weak. Perhaps worryingly for the future outlook, machine tool orders have slowed further, suggesting weak confidence in the manufacturing sector for some time to come.

� The service sector continued to perform poorly, exposed as it is to weak consumer confidence, though in most sectors the growth rate has stabilised, albeit in negative figures. Southern Europe, particularly Spain, remains harder hit than Northern Europe, though Italy is showing some signs of growth in its retail sector, suggesting a nascent recovery in that country.

� H2 2013 should be a period of consolidation. Signs of recovery in domestic markets are adding to growing demand from export markets, boosting manufacturing industry, which should trickle down in the form of growing consumer confidence. Chancellor Merkel’s resounding victory in the German elections should boost confidence there, though it may weaken that in peripheral countries where consumers were hoping for a change in policy towards the debt crisis. Overall, the recovery remains highly precarious, and any recurrence of Euro issues could throw it off course, starting in the service sector and knocking on to manufacturing and raw materials.

1

Table of Contents

Industry Indicator Latest Date Page

1. Western European Car Registrations Jun 2013 Automotives

2. UK Passenger Car Production Jun 2013 2

Machinery 3. German Machine Tool Orders Jun 2013

Electronics 4. European PC Shipments Jun 2013 3

5. European Crude Steel Production Jun 2013 Steel

6. European Steel Product Prices Jul 2013 4

Petrochemicals 7. European Ethylene Prices Aug 2013

Electricity 8. Western European Electricity Prices Jul 2013 5

9. UK Retail Sales Volumes Jun 2013 Retail

10. Eurozone Retail Sales Volumes Jun 2013 6

Aviation 11. European Air Passenger Traffic Jun 2013

Hotel 12. UK Hotel Occupancy Levels / RevPAR Jun 2013 7

Telecoms 13. Western European Mobile ARPU Jun 2013

Media 14. UK Advertising Expenditure Mar 2013 8

15. UK C.London Office Vacancy Rate / Rents Jun 2013 Offices / Housing

16. UK House Prices / Mortgage Approvals Jul 2013 9

Appendix 1 UK Macroeconomic Indicators 11

Appendix 2 Eurozone Macroeconomic Indicators 12

Appendix 3 Main Commodity Prices and Indices, Main FX Rates 13

Note: The "FORECAST" period added in this edition is a short-term outlook (about 6 months to 1 year).This bulletin is issued semi-annually.

2

1. Western European Car Registrations Forecast: Rate of decline will slow as the economy

gradually recovers in key markets

0

400

800

1,200

1,600

2,000

08 09 10 11 12 13

-40

-30

-20

-10

0

10

20

30

40

Registrations (LHS)6 months moving average (Grow th rate) (RHS)Grow th rate (YoY) (RHS)

(Source: ACEA) (Unit: '000, %)

� New car registrations in Western Europe in H1 2013 continued to decline, by 6.6% YoY to 6.1m units.

� As the region continued to suffer from the effects of the Eurozone crisis, registrations in France (-11.2 % YoY) and Italy (-10.3%) saw consecutive double digit declines. Sales also continued to drop in Germany (-8.1%), at an accelerated rate of decline. Registrations fell again in Spain (-4.9%) too, despite the introduction of a scrappage scheme by the government. In contrast, the UK (+10.0%) maintained robust growth in registrations, thanks largely to recovering consumer confidence and competitive finance deals offered by dealers and manufacturers.

� PSA (-13.8%), Fiat (-9.8%) and VW (-3.3%) all suffered a decline in sales, with the biggest falls coming in their home countries. Sales at Hyundai, which had grown in H2 2012, also dropped by 1.6%. In contrast, sales at Daimler grew by 2.0% thanks largely to key facelifts and the launch of a new model. Sales at JLR, whose SUVs continued to perform strongly, also increased, by 11.2%.

� Registrations are expected to decline again in H2

2013, but at a slower rate due to a gradual economic recovery in key markets such as Germany. In the UK, the robust sales growth is likely to continue.

2. UK Passenger Car Production Forecast: Marginal growth as exceptional increase will cancel out decline in Europe bound cars

0

25

50

75

100

125

150

175

08 09 10 11 12 13

-100

-80

-60

-40

-20

0

20

40

60

80

100

Production (LHS)

6 months moving average (Grow th rate) (RHS)Grow th Rate (YoY) (RHS)

(Source: SMMT) (Unit: '000, %)

� UK car production in H1 2013 continued to increase, by 1.1% YoY to 0.76m units, but the rate of growth slowed compared to H2 2012.

� Overseas demand, which accounts for around 80% of the total, decreased by 3.8%, largely due to the ongoing sales slump in Europe. Demand from Russia also declined as a result of the country’s economic slowdown. Conversely, domestic demand continued to grow robustly, by 24.4%, in response to increased car sales within the UK.

� Production at JLR (+16.5%), whose sales grew globally, and Toyota (+43.2%), which shifted the production of the upgraded Auris (a leading C-segment model) from Turkey to the UK, increased significantly. In contrast, production at Nissan (-11.0%) decreased as sales of its popular crossover Qashqai – a model on the market since 2007 – fell, mainly in mainland Europe and Russia. BMW (MINI, -17.0%) and GM (Vauxhall, -17.8%) also manufactured fewer cars due to falling sales of A, B and C segment vehicles in mainland Europe.

� In H2 2013, UK car production will continue to grow

marginally. While most carmakers are likely to decrease production in response to the shrinking European market, production increases at Toyota and JLR are expected to continue.

3

3. German Machine Tool Orders Forecast: Double-digit decline due to further fall in

EU orders while Chinese orders recover

40

60

80

100

120

140

160

08 09 10 11 12 13

-100

-80

-60

-40

-20

0

20

40

60

80

100Orders (3m moving average)Grow th Rate (YoY)(RHS)

(Source: Destatis) (Unit: Index (2010=100), %)

� German machine tool orders in H1 2013 decreased by 10.4%YoY. This marked a third consecutive half-year decline.

� Export orders, which account for about 70% of the total, continued to fall, by 6.7%. While orders from the U.S. increased due to investments in the automotive and aviation industries, orders from China, the largest export destination, declined due to low levels of investment, mainly in the automotive and machinery industries. Orders from EU countries also declined due to the prolonged economic downturn.

� Domestic orders also continued to fall, by 15.8% YoY. Although orders from German carmakers remained virtually flat, investments by companies in other industries such as machinery and electronics were restrained.

� In H2 2013, overall orders will continue their double-

digit decline. Export orders are expected to decline at a similar rate to H1, as fall in demand from the non-German carmakers is likely to contribute to an overall decrease in demand in the EU. Demand from the Chinese automotive and machinery industries is expected to recover gradually. Domestic orders are also expected to decline further as machinery and electronics manufacturers remain cautious about investment decisions.

4. European PC Shipments Forecast: Shipments will continue their double-digit

decline, albeit at a lower rate

0

5

10

15

20

25

30

35

08 09 10 11 12 13

-30

-20

-10

0

10

20

30

40Shipments (3m moving average)(LHS)4Q Moving Average (Shipments)(LHS)Grow th Rate (YoY)(RHS)

(Unit: mil,%)(Source: Gartner Group)

� European PC shipments fell by 20.1% YoY to 34m units in H1 2013, marking an accelerated rate of decline from 10.2% in H2 2012.

� Shipments of mobile PCs, which account for about 60% of the total, decreased by 24.8% YoY despite the release of Windows 8 in H2 2012, due to the sluggish economy and shifts in demand towards media tablets. Shipments of desktop PCs, going mainly to the professional-use segment, also continued to decline, by 11.7%, as companies remained cautious about IT spending.

� Western European shipments continued to decline, by 20.2% YoY. The rate of decline has accelerated in many Western European countries including Germany and the UK. Eastern European shipments also declined by 20.0%, mainly due to inventory adjustments resulting from weak demand in Russia, which accounts for about half of all Eastern European shipments.

� In H2 2013, overall shipments will continue their

double-digit decline, albeit at a lower rate than in H1. As the support for Windows XP is due to end in April 2014, this is likely to generate a certain level of demand for replacements. However, shipments will not recover strongly because corporate capex will remain weak, while consumers’ shift to tablets is expected to continue.

4

5. European Crude Steel Production Forecast: Contraction of EU steel production should slow

6

8

10

12

14

16

18

20

08 09 10 11 12 13-60

-40

-20

0

20

40

60

80EU27 Steel Production (LHS)

EU27 YoY grow th (RHS)

(Sources: Bloomberg; IISTEURO) (Unit: mil tonnes, %)

� Steel output in H1 2013 was down by 5.1% YoY, with Italy declining by 14.7% as cutbacks at Riva, in particular, affected supply. This can be contrasted with France, Germany and Spain which showed declines of 4.3%, 1.6%, and 1.1% respectively, whilst the UK showed an increase of 24.9%.

� The decline was largely due to weak demand from the two key end uses of steel: EU construction activity continued to contract H1 2013, at around 5% YoY to May 2013; the auto sector has also been weak, with H1 2013 European production down by 10.1% YoY, although the UK saw car production grow 2.9%.

� The contraction of EU steel production in H2 2013

should slow. The construction sector is expected to show a small recovery towards end of year. Declines in the automotive production also seem to have bottomed out, but the sector is not expected to show recovery in H2 2013. FY 2013 EU steel consumption is expected to fall.

� Significant restocking of steel products appears unlikely. Some support will come from modest economic growth in the UK, Central Europe and the Nordic economies. Operating rates will remain below 70%.

6. European Steel Product Prices Forecast: European steel prices are likely remain low at least to the end of this year

300

400

500

600

700

800

900

1000

08 09 10 11 12 13

EU Cold Roll

EU Wire Rod

(Source: Bloomberg; MBSTST36, Metal Bulletin)

(Unit: EUR/tonne)

� European cold roll prices have followed a downward trend for most of 2013 and are currently well below their 2012 levels. By the beginning of 2013, the previous upward price momentum created by production cuts had worn off. Demand from the automotive industry, the main consumer of cold roll, continues to weaken. The seasonal slowdown in summer also contributed to a decline in prices. In addition, imports, notably from China, have affected prices negatively; Chinese exporters have moved up their product range to upstream products.

� Wire rod prices were more resilient to the downward trend than cold roll prices. This is partly due to extended maintenance closures. However, the construction industry, major consumer of wire rod, remains weak.

� The fragile economic outlook in the Eurozone

continues to affect European steel demand negatively. The automotive and construction industries are also likely to continue to decline. albeit at a slower rate.

� On the supply side, imports and ample spare capacity hinder price increases. Raw material costs are likely to remain at the current levels.

� Overall, prices for both products are unlikely to see strong increase before 2014.

5

7. European Ethylene Prices Forecast: Prices should range between $1,500-$1,600/tonne

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

08 09 10 11 12 13

EthyleneNaphthaEthylene-Naphtha Spreads

(Source: Bloomberg; POLIETNW /

Thomson Reuters; NAF-C-NWE)

(Unit : US$/tonne)

� Prices plummeted from March to mid-May due to weak demand for key ethylene derivatives.

� On the supply side naphtha prices tracked decreases in crude oil. Rising values for ethylene co-products, led by butadiene, also mean producers did not have to solely rely on ethylene profitability to run crackers.

� Demand improved in Q2 2013 due to low inventories and a view that the market had bottomed out. Ethylene spot prices rose steadily from a May low of €1,095/tonne towards €1,400/tonne.

� H2 2013 saw a continued increase in ethylene prices.

The expectation of increased contract prices in August saw some pre-buying. Ethylene spot prices edged over €1,400/tonne.

� On the supply side, June saw stability in the naphtha market, tracking oil prices. Prices increased into July. Middle East uncertainty will add upward pressure.

� In spite of the positive picture, forward price momentum above the current level into Q4 2013 will be limited by a lack of increased downstream demand. Ineos planned shutdown of its No.5 Cologne cracker around mid-September 2013, may support prices to a degree, although this represents only 2% of capacity.

� The increased spread in H2 will flatten as naphtha price gains overtake ethylene. Ethylene prices should range between $1,500-$1,600/tonne.

8. Western European Electricity Prices Forecast: Prices to recover as demand for power picks up, the divergence in power prices will persist

� Electricity prices in UK, Germany and France fell on average by 29% in H1 2013 as the annual seasonal fall in demand took place. After a cold start, milder weather in Western Europe reduced energy demand.

� Electricity prices have seen disconnect from gas prices in Germany aided by strong growth in renewables and more competitive coal generation, whereas in the UK there are fewer alternatives to gas generation, leading to price divergence between the countries as gas prices have remained stable. France relies on nuclear and hydro generation but prices shadow Germany due to well-established interconnections, the spike in March being an aberration due to harsher weather leading to higher power demand.

� Power usage will increase as the annual upturn in demand

takes place, aided by colder weather and some signs of economic recovery in the Western European.

� Coal output will remain dominant in Germany helped by price competiveness, whilst renewable output is sustained by increasing wind generation. In the UK, gas and coal power plants will stay as the dominant producers, although rising wind generation will increase renewables contribution. Thus the divergence in power prices will persist: we estimate an average price of €70/MWh in the UK, whilst German and French prices will reach €50/MWh.

(Day-Ahead Peak Load)

0

20

40

60

80

100

120

140

160

180

08 09 10 11 12 13

(Unit: EUR/MWh)

UK Germany France

(Source: Bloomberg; ELUPDAHD,

ELFPDAHD, ELGPDAHD)

6

9. UK Retail Sales Volumes Forecast: Consumer confidence grows, yet falling real wages will ensure growth remains modest

0

20

40

60

80

100

120

140

08 09 10 11 12 13

-10

-8

-6

-4

-2

0

2

4

6

8

Non-Food Index (Household, Clothing,etc) (LHS)Food Index (LHS)YoY Total * YoY Food * YoY Non-Food *

(Source:Eurostat) (Unit: Index (2010=100), %)

*YoY grow th

(3m moving average)

� Average total retail volume growth (excl. fuel) in H1 2013 slowed by 1.2% to 2.6%, underscoring the ongoing pressure on disposable incomes amid a recent run of more positive economic data.

� Growth in non-food remained strong in H1 2013 (4.9%), buoyed by the recovering housing market. Heavy discounting by department stores provided a conservative lift to June’s retail volumes (4.2%) following a steady decline between March and May.

� Average retail volumes of food declined by -1.1% over H1, driven by unseasonably cold Spring weather.

� Consumer confidence registered an upturn over May and June as the UK economy continued to strengthen. UK consumer confidence reached -21 in June, a level not seen in over 2 years.

� During H2 2013, consumer spending will undergo

modest growth and discretionary spending will recover as both the UK economy and consumer confidence gradually strengthens. Warm weather will positively impact sales over July and August.

� However, overall growth will remain fragile as inflation continues to outpace wage growth, though household goods should benefit from rising property prices as people undertake redecorating projects ahead of selling their homes in 2014.

10. Eurozone Retail Sales Volumes Forecast: Subdued and fragile recovery in sales as economy shows signs of recovery

0

20

40

60

80

100

120

140

08 09 10 11 12 13

-8

-6

-4

-2

0

2

4

6Non-Food Index (Household, Clothing,etc) (LHS)Food Index (LHS)YoY Total *

YoY Food *YoY Non-Food *

*YoY growth

(3m moving average)

(Source: Eurostat) (Unit: Index (2010=100), %)

� Total volume growth in H1 2013 averaged -1.5%. Consumer confidence saw a conservative increase in H1 but remained far below long-term norms.

� Food volumes decreased by -1.6% over H1 2013. All major countries except Germany saw negative figures. Non-food volume growth averaged -1.5%, reversing the steady decline of the past two years. Textile sales volumes fell by -0.8% while household goods saw the sharpest decline in the Eurozone (-3.8%). All major countries saw negative figures.

� Germany represented the strongest market, with H1 growth of 0.7%, with France being comparable (0.6%). In Italy, overall sales declined by -1.8%, signaling the economy’s nascent stabilization as Q2 GDP fell less than expected. Growth in textile sales (8.1%) drove the recovery in Italy’s retail sector. Spain’s overall decline in sales volumes in H1 (-8.5%) was attributable to poor performance in household goods (-13.4%) and textiles (-11.0%).

� Retail sales volumes are expected to undergo

subdued and fragile recovery in H2 2013 as the Eurozone shows signs of improvement and consumer confidence gains momentum.

� National differences in sales trends will continue, with Germany driving growth. Spain’s high jobless rate will continue to impede consumer spending.

7

11. European Air Passenger Traffic Forecast: Traffic growth to pick up narrowly

-10%

-5%

0%

5%

10%

15%

08 09 10 11 12 13

Other

Middle East

Asia

North Atlantic

Europe

Q YoY grow th

(Source: AEA) (Unit: %)(*Columns denote contribution)

� Traffic growth declined in H1 2013 to 1.2% YoY, continuing the slowdown trend seen since H2 2011. Growth in traffic slowed in Europe, Asia and Other destinations, while it increased on Middle East (ME) and North Atlantic (NA) routes.

� Asia and Other routes growth declined due to the deceleration in the Chinese and Brazilian economies. The slow growth in Europe is due to continuing subdued business and consumer confidence and the increasing competitive pressures from LCCs on many European routes.

� The rise in growth for ME destinations follows a decline by 1.3% in H2 2012, but is in line with the trend seen on ME routes of slowing growth as the region’s ongoing political tension affects demand. The NA growth rate rose slightly compared to H2 2012 due mainly to the economic recovery but remained below H1 2012.

� The outlook for H2 2013 is for limited pick-up in

traffic growth. This will be driven by easing recessionary conditions and an expected improvement in business and consumer confidence.

� Growth on ME and Other routes will likely be negatively affected by the political unrest in the ME and the slowing growth in Brazil.

12. UK Hotel Occupancy Levels / RevPAR Forecast: Growth in corporate bookings and a weaker pound will alleviate some downward pressure

40

45

50

55

60

65

70

75

80

85

90

08 09 10 11 12 13

-15

-10

-5

0

5

10

Occupancy (LHS)

RevPAR (% YoY) (3 month moving

average) (RHS)

(Source: TRI Hospitality Consulting)(Unit: %) (Unit: %)

� Occupancy rates in the UK increased only marginally by 0.8 % in H1 2013 YoY. Although an improvement in the UK’s economy resulted in an increase in corporate bookings, the effects were limited due to the continued difficulty in attracting inbound tourism with the Eurozone crisis ongoing.

� The increase in corporate bookings also helped push up UK RevPAR by 2.6 % YoY. As London saw an increase in supply of hotels coming onto the market post Olympics, RevPAR increases were slightly lower there (1.6%) than the rest of the UK (3.9%).

� In H2 2013, occupancy rates in the UK will come

under pressure due to the ongoing Eurozone crisis plus the continued cuts in public sector funding together with further squeezes on household incomes. London’s occupancy rates are likely to be harder hit than other areas as the capital will continue to absorb further hotel supply.

� As a consequence RevPAR growth across the UK will be minimal even though the combination of steady growth in corporate bookings and a weaker pound, plus the associated increases in inbound tourism, will alleviate some downward pressure on RevPAR.

� We therefore expect UK RevPAR to be flat in H2 2013.

8

13. Western European Mobile ARPU Forecast: ARPU will continue to fall in France, Italy and Spain

10

15

20

25

30

35

40

08 09 10 11 12 13

France Germany

Italy SpainUK

(Source: Informa) (Unit: EUR )

(*Figures are blended ARP U o f bo th po s t pa id and pre-

pa id s ubs cribe rs )

� Average revenue per user (ARPU) levels declined across all of the main markets in Western Europe, due to increased competition and regulatory changes.

� The UK saw a drop in ARPU due to a relatively deep MTR cut and the disruptive effect of EE launching 4G services well ahead of its competitors.

� Free’s entry to the French market continues to have an impact on ARPU, which is now down 14.8% from when the fourth-player launched in Jan 2012.

� Germany’s ARPU has remained relatively stable, with few developments to change Europe’s most competitive major market.

� Italy and Spain recorded fresh notable declines in ARPU in H1 due to a variety of factors, including changing consumer behaviour and service bundling.

� H2 ARPU figures in the UK should strengthen as O2

and Vodafone launch their premium 4G services and 4G up-take increases.

� France should see greater stability as the impact of Free’s launch starts to dissipate.

� Germany’s ARPU is likely to remain stable in H2, with little room for significant movement in pricing.

� Recent trends are expected to continue in Italy and Spain, leading to further declines.

14. UK Advertising Expenditure Forecast: Print-media will continue to hold back UK adspend

0

1,000

2,000

3,000

4,000

08 09 10 11 12 13-30

-25

-20

-15

-10

-5

0

5

10

15

OtherInternetNew spapersTVNon-internet Grow th Rate (YoY)(RHS)Total Grow th Rate (YoY)(RHS)

(Unit: GBP Million, %)(Source: WARC)

� UK adspend dropped 0.4% YoY in Q1 2013, after recording 1.5% growth in 2012. The extra expenditure that occurred in the run-up to the Olympics in 2012 also has a negative impact upon H1 2013 YoY growth figures.

� The decline in newspaper advertising continues to weigh heavily on the market, as total adspend in Q1 2013 recorded growth of 2.0% YoY when newspaper is excluded. Newspaper advertising has now experienced nine consecutive quarters of double-digit declines and last recorded growth in Q3 2007.

� Internet expenditure remains strong with 8.2% YoY growth and it now accounts for 34.3% (Q1 2013) of total UK advertising.

� H2 2013 is expected to see firmer YoY advertising

growth figures as the Olympics boost to the 2012 data dissipates, particularly in Q4. The growth in retail sales seen in H1 2013 and cautious optimism about the UK’s economy should also start to encourage companies to increase their marketing budgets.

� While newspaper expenditure is likely to continue declining in H2, it counts for an increasingly small segment of total advertising and will have less of a negative effect on overall growth.

9

15. UK Central London Office Vacancy Rate / Rents

Forecast: Strengthening demand will match new office completions

0

5

10

15

20

08 09 10 11 12 130

10

20

30

40

50

60

70

80

90

100

110

120

City Vacancy Rate (LHS)West End Vacancy Rate (LHS)City Prime Rent (RHS)West End Prime Rent (RHS)

(Source: Jones Lang LaSalle) (Unit: %, GBP/sq.ft .)

� In H1 2013 rents in the City remained steady after having increased in H2 2012, supported by higher take up and a lull in new supply that have led to a 0.4pp decline in City vacancy rates in H1.

� Prime rents in the West End recorded a small uptick to £97.50, on the back of strong take-up figures. This is despite the West End vacancy rate having risen slightly in Q2 to 4.7% due to seven new office completions totalling 587,600sq.ft, although it remains below the long term average of 5.4%.

� Across London demand continues to be driven by the TMT sector, such as Google’s 725,000sq.ft pre-let deal on the Kings Cross Central site.

� The City vacancy rate will drop further in H2 due to

increasing demand, with News UK’s 430,200sq.ft move to the ‘Baby Shard’ in July marking a strong start. The significant supply pipeline for 2014 may limit the potential for rent increases, however.

� The West End may see further upward movement in its vacancy rate in H2, with around 700,000sq.ft of speculative development due for completion. Strengthening demand should ensure that rents remain firm particularly in the core area around Mayfair where supply is lower.

16. UK House Prices / Mortgage Approvals Forecast: House prices likely to continue increasing in H2 2013.

400

500

600

700

08 09 10 11 12 1320

60

100

140Halifax House Price Index

(1983=100, LHS)

Mortgage Approvals

(RHS)

(Source: Halifax; Bank of England) (Unit: Index, '000)

� UK house prices increased by 2.8% in H1 2013 after having decreased since H2 2010. The growth rate in Q2 of 2.1% was highest since Q1 2010.

� The strong growth is due to increased mortgage approvals: 5.7% growth in Q2 compared to Q1. Mortgage availability increased due to the Funding for Lending Scheme (FLS), launched in July 2012, which has resulted in increasing availability and lower rates on mortgage loans, and the launch of the Help To Buy (HTB) scheme in April 2013.

� HTB has particularly boosted growth in demand from first time buyers, whose share of the total home purchase market increased to 44% in H1 2013, the highest since 2000.

� The rise in house prices has been further stimulated by the persistent shortage of supply of new homes due to planning restrictions.

� UK house prices should continue to rise in H2

2013, driven by HTB and FLS, and the expected maintenance of low interest rates as indicated by the BoE.

� The recovering economy, consumer confidence and declining unemployment should further stimulate demand which along low supply should contribute to rising house prices.

10

Appendix 1 (UK Macroeconomic Indicators)

GDP Industrial Production

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

08 09 10 11 12 13

(Unit: QoQ %)(Source: Bloomberg, EUGNUKQQ)

(*Seasonally adjusted)

-15

-10

-5

0

5

10

08 09 10 11 12 13

All production

Manufacturing

(Source: Bloomberg, UKIP IYOY, UKMP IYOY) (Unit: YoY %)

(*Seasonally adjusted)

Business Insolvencies Total Unemployment / Unemployment rate

0

1,000

2,000

3,000

4,000

5,000

6,000

08 09 10 11 12 13

-40

-20

0

20

40

60

80Number (RHS)

Grow th rate (YoY) (LHS)

(Source: Bloomberg, UKINTOTL, UKINTOTY) (Unit: number, % )

(*England & Wales)

600

800

1,000

1,200

1,400

1,600

1,800

08 09 10 11 12 13

0.0

1.0

2.0

3.0

4.0

5.0

6.0Actual (LHS)

Unemployment Rate

(Source: Bloomberg, UKUER, UKUETOTL) (Unit: '000, % )

(*Seasonally adjusted)

RPI / CPI PMI

-2

-1

0

1

2

3

4

5

6

08 09 10 11 12 13

RPI

CPI

(Source: Bloomberg, UKRP CJYR, UKRP YOY) (Unit: YoY %)

30

35

40

45

50

55

60

65

08 09 10 11 12 13

(Anything above 50 indicates expans ion,

below 50 indicates contraction. )(Source: Bloomberg, P MITMUK)

11

Appendix 2 (Eurozone Macroeconomic Indicators)

GDP Industrial Production

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

08 09 10 11 12 13

(Unit: QoQ %)(Source: Bloomberg, EUGNEMUQ)

(*Seasonally adjusted)

-30

-20

-10

0

10

20

08 09 10 11 12 13

Eurozone France Germany

(Source: Bloomberg, EUIP EMUY, EUIP FRYY) (Unit: YoY %)

(*Workday adjusted,

excluding construction)

Construction Production Index Unemployment Rates

-5

-4

-3

-2

-1

0

1

2

3

08 09 10 11 12 13

EurozoneFranceGermanySpain

(Source: Bloomberg, EUMGEM UM,

EUMGDE, EUMGES, EUMGFR)(Unit: QoQ %)

(*Seasonally adjusted,

4 quarter moving average)

6

7

8

9

10

11

12

13

08 09 10 11 12 13

(Unit: %)(Source: Bloomberg, UMRTEMU)

(*Seasonally adjusted)

Consumer Price Index PMI

-1

0

1

2

3

4

5

08 09 10 11 12 13

All Items

All Items Excluding Energy

(Source: Bloomberg, ECCP EMUY, CP XNEMUY) (Unit: YoY % )

30

35

40

45

50

55

60

08 09 10 11 12 13

(Anything above 50 indicates expans ion,

below 50 indicates contraction. )(Source: Bloomberg, P MITMEZ)

12

Appendix 3 (Main Commodity Prices and Indices, Main Foreign Exchange Rates)

Crude Oil (Brent) Prices UK Gas Prices

0

20

40

60

80

100

120

140

08 09 10 11 12 13

(Source: Bloomberg; CO1) (Unit: USD/barrel)

(*Generic 1st 'CO' future, montly average)

0.0

0.2

0.4

0.6

0.8

1.0

08 09 10 11 12 13

(Source: Bloomberg; NBP GQTR1) (Unit: GBP/Therm)

(*First Quarter Natural Gas Forward Price,

montly average)

CRB Index London Gold prices

0

100

200

300

400

500

08 09 10 11 12 13

(Source: Bloomberg; CRY) (1967=100)

(*Reuters / Jefferies CRB Index, montly average)

600

800

1,000

1,200

1,400

1,600

1,800

08 09 10 11 12 13

(Source: Bloomberg; GOLDLNP M) (Unit: USD/ounce)

(*London Gold Market Fixing Ltd

PM Fix Price, montly average)

Copper Prices Aluminium Prices

0

2,000

4,000

6,000

8,000

10,000

08 09 10 11 12 13

(Source: Bloomberg; LMCADY) (Unit: USD/MT)

(*LME copper spot, montly average)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

08 09 10 11 12 13

(Source: Bloomberg; LMAHDY) (Unit: USD/MT)

(*LME alminium spot, montly average)

13

CRB Food Price Index Cotton Prices

200

250

300

350

400

450

500

550

600

08 09 10 11 12 13

Foodstuff

Fat and Oil

(Source: Bloomberg; CRB FOOD, CRB FTOL)

(*CRB spot price index,

montly average, 1967=100)

(1967=100)

0

50

100

150

200

250

08 09 10 11 12 13

(Source: Bloomberg; COTLOOKA) (Unit: USd/lb)

(*Cotlook Ltd Raw

Cotton A Index,

montly average)

Cocoa Prices GBP/EUR

1,000

1,500

2,000

2,500

3,000

3,500

08 09 10 11 12 13

(Source: Bloomberg; JMCXCCP I) (Unit: USD)

(*JP Morgan Cocoa Price Index,

montly average)

1

1.1

1.2

1.3

1.4

08 09 10 11 12 13

(EUR)

Weak Pound

Strong Pound

(*Montly average)

(Source: Bloomberg; GBP EUR)

EUR/USD, GBP/USD EUR/JPY, GBP/JPY

1

1.2

1.4

1.6

1.8

2

2.2

08 09 10 11 12 13

EUR/USD

GBP/USDStrong Dollar

Weak Dollar

(*Montly average)

(Source: Bloomberg, EURUSD, GBP USD)

(USD)

90

110

130

150

170

190

210

230

08 09 10 11 12 13

EUR/JPY

GBP/JPY

(JPY)

Strong Yen

Weak Yen

(*Montly average)

(Source: Bloomberg; EURJP Y, GBP JP Y)

14

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