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Life, the world and Interest Rates

Life, the world and Interest Rates. East Midlands Councils 7 April 2011 Simon Cossey Director, Financial Markets. WHATEVER HAPPENED TO THE SLOW RECOVERY?. 6.0. %. QUARTERLY. 4.0. ANNUAL. Long-term average. 2.0. 0.0. -2.0. -4.0. -6.0. 2006. 2007. 2008. 2009. 2010.

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Life, the world and Interest Rates

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  1. Life, the worldand Interest Rates East Midlands Councils 7 April 2011 Simon Cossey Director, Financial Markets

  2. WHATEVER HAPPENED TO THE SLOW RECOVERY? 6.0 % QUARTERLY 4.0 ANNUAL Long-term average 2.0 0.0 -2.0 -4.0 -6.0 2006 2007 2008 2009 2010

  3. BUSINESS CONFIDENCE IS RECOVERING AND INVESTMENT SPENDING WILL FOLLOW… % balance % increase in year 60 UK business confidence, rhs 20 50 10 40 0 30 -10 20 -20 10 0 -30 -10 -40 -20 Business investment, lhs -50 -30 -60 -40 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: Thomson Datastream

  4. CORPORATE SURPLUS IS HEALTHY (18% OF GDP) £270BN

  5. % bal %Qtr 80 2.0 1.5 60 Monthly GDP (RHS) 1.0 40 0.5 20 0.0 0 -0.5 -20 GDP growth -1.0 projected to slow LTSB Business Barometer – economic prospects (3m lead) -40 -1.5 sharply -60 -2.0 -80 -2.5 Jul-10 Jul-08 Jul-09 Jul-07 Jul-06 Jan-11 Jan-09 Jan-10 Jan-08 Jan-06 Jan-07 IN-HOUSE BUSINESS BAROMETER POINTS TO SLOWER GROWTH

  6. 200 180 180 2000 166 160 2008 160 140 139 140 130 128 124 114 112 120 111 Household debt % disposable income 105 98 96 100 81 80 69 69 60 60 48 34 40 20 0 Italy Spain Japan France Canada Germany Switzerland South Korea United States United Kingdom UK HOUSEHOLDS AMONGST THE MOST INDEBTED IN THE WORLD Source: National Statistical Agencies

  7. %yr 25 20 Lending to corporates 15 10 Lending to households 5 0 -5 -10 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 DELEVERAGING POSES A CONTINUED IMPEDIMENT TO PRIVATE SECTOR RECOVERY Source: Bank of England

  8. % 14 12 10 8 UK saving ratio 6 4 2 0 -2 UK consumer spending %Yr -4 -6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 HOUSEHOLDS SAVING LESS TO FINANCE SPENDING Source: ONS

  9. % (as share of total) 35 29.2 26.0 24.7 24.3 25 22.1 21.9 20.8 20.7 20.4 20.4 18.1 16.4 16.2 15 5 East Wales London Scotland South East North West South West East Midlands North East West Midlands United Kingdom Yorks & Humber Northern Ireland PUBLIC SECTOR EMPLOYMENT BY REGION Source: LTSB/ONS

  10. 140 % increase in year 120 Numbers approved 100 80 60 40 20 0 -20 Value of loans -40 -60 -80 2008 2009 2010 THE HOUSING MARKET IS STABLE BUT SUBDUED…

  11. INTEREST RATES NOT SET TO RISE UNTIL END OF 2011 AT THE EARLIEST Short term interest rates, % 6.5 Forecasts 6.0 5.5 UK 5.0 4.5 4.0 3.5 3.0 US 2.5 2.0 1.5 Euro 1.0 0.5 0.0 3.1 9.1 3.08 9.08 3.09 9.09 9.07 3.07 3.06 9.06 3.12 9.11 3.11 Source: Lloyds

  12. % £mn 8 25000 7.5 7 20000 Standard variable rate 6.5 6 15000 5.5 5 10000 4.5 4 5000 Property income paid (RHS) 3.5 3 0 Q1 2001 Q1 2000 Q3 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2008 Q1 2009 Q3 2000 Q3 2002 Q3 2003 Q3 2004 Q3 2005 Q3 2006 Q1 2007 Q3 2008 Q3 2009 Q3 2007 LOWER INTEREST RATES HAVE SUPPORTED DISPOSABLE INCOME Source: Lloyds

  13. Consumption growth moderation YoY % Avg 2.36% Avg 1.40% 4 3 2 1 0 -1 -2 -3 -4 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F CONSUMPTION GROWTH TO BE WEAKER LOOKING FORWARD Source: Lloyds

  14. …INTEREST RATES SHOULD REMAIN LOW BEFORE RISING SHARPLY ONCE RECOVERY TAKES HOLD

  15. % yr 6 6 LTSB Forecast 5 5 4 4 RPI inflation 3 3 2 2 1 1 CPI inflation 0 0 - - - - 1 1 - - - - 2 2 2007 2008 2009 2010 2011 2012 CPI & RPI INFLATION FORECAST Source: LTSB/ONS

  16. This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing discussed herein is based on our view of current market conditions and is for discussion purposes only. This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution - in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB. The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers, servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal considerations are subject to change and in all cases independent professional advice should be sought in those areas. This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue, purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of presentation and may therefore not be complete. Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them. Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated for involvement in investment banking transactions, except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in any financial instrument mentioned in this Presentation. Lloyds TSB Corporate Markets is a trading name of Lloyds TSB. Lloyds TSB’s registered office is 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under No. 2065. Lloyds TSB is authorised and regulated in the United Kingdom by the Financial Services Authority. IMPORTANT NOTICE

  17. The Bond Age is upon us Don’t panic 6 Sources of Capital It’s a Corporate World out there

  18. PIIGS G20 QE 2 Currencies CHINA Unemployment The Wall of Worry Inflation

  19. MPC swingometer points away from printing cash

  20. 5, 10, 11, 12, 13, 15

  21. Acceptilation

  22. Booming local market - £50ld

  23. 1 Recession 2 Resuscitate 3 Relapse 4 Recuperate 5 Regenerate 7 Robust The Seven Economic ‘R’s 6 Recovery

  24. Somewhere between two and three Reboot – turn the economy on and off 8 Ramifications – are we ready Resolute – in approach Reduction – deficit Retrenchment – Consumers think twice Rebalancing – will take some time Rescue – have we done enough

  25. This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing discussed herein is based on our view of current market conditions and is for discussion purposes only. This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution - in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB. The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers, servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal considerations are subject to change and in all cases independent professional advice should be sought in those areas. This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue, purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of presentation and may therefore not be complete. Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them. Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated for involvement in investment banking transactions, except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in any financial instrument mentioned in this Presentation. Lloyds TSB Corporate Markets is a trading name of Lloyds TSB. Lloyds TSB’s registered office is 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under No. 2065. Lloyds TSB is authorised and regulated in the United Kingdom by the Financial Services Authority. IMPORTANT NOTICE

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