Lloyds Banking Group PLC : PMI Release January 2012

PRESS RELEASE

Compiled by Markit for Bank of Scotland, this report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 600 private manufacturing and service sector companies. The panel is carefully selected to accurately replicate the true structure of the Scottish economy.

NOT FOR BROADCAST OR PUBLICATION BEFORE 00:01, MONDAY 09 JANUARY 2012

BANK OF SCOTLAND PMI: ACTIVITY EXPANDS FURTHER AS NEW BUSINESS INCREASES SOLIDLY IN DECEMBER

• Output increases for twelfth month running

• New business up at sharpest rate since April 2011

• Job creation moderates

Latest data from the Bank of Scotland PMI indicated that Scottish private sector output increased further in December. This reflected the first rise in new business for four months, with employment also increasing, but at a slower pace. Elsewhere, charges were raised at an accelerated rate as cost pressures remained strong.

Output growth edged up for the second consecutive month in December, but nonetheless remained shy of the pace of expansion registered in the first half of 2011. This was signalled by the Bank of Scotland PMI posting 51.2, up marginally from 51.1 in November. The UK as a whole, however, performed even better, expanding solidly on the month.

Scottish firms recorded the first increase in new business for four months in December. Moreover, business wins rose at the fastest pace since April 2011, and solidly overall. Growth was confined to the service sector, however, where product launches and successful marketing led to a robust month-on-month increase in new work. New orders placed at manufacturers continued to fall, albeit at a slower rate.

Employment within Scotland's private sector rose for the second month running in December, but only at a modest pace. In contrast to the trends in output and new business, goods producers added staff at the faster rate, with service providers recruiting staff at only a marginal rate even as demand in the sector strengthened.

Scottish firms cleared outstanding business for a fourth straight month during December. The decline in backlogs of work was solid, albeit the weakest for three months.

Cost inflation subsided slightly in December and, reflecting a much weaker rate of growth of costs faced by Scottish manufacturers, was the slowest for 12 months. That said, with a range of inputs, such as energy, fuel and food, increasing in price in the month, cost pressures overall remained strong compared with the historical standards of the series.

Corresponding with an increase in pricing power at Scottish service providers, overall charge inflation accelerated to the sharpest for five months during December. Factory gate prices, nevertheless, grew at a faster rate than service sector tariffs.

Donald MacRae, Chief Economist at Bank of Scotland, said: "The PMI has been positive (above 50) for all 12 months of 2011 indicating growth in the private sector of the Scottish economy. However, the last four months have seen a slowdown with December's result just positive at 51.2.

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"A pickup in the services sector at the end of last year has compensated for falling output and export orders from a manufacturing sector suffering from the slowing of the Eurozone economies. The increase in new business for the first time in four months is very welcome and suggests the Scottish economy, while struggling to grow, is avoiding a fall in output."

Component Summary

Business Activity:

Latest data showed a further increase in private sector output in Scotland, extending the current sequence of expansion to 12 months. December's increase in activity was the fastest for three months, but still weaker than the average recorded throughout 2011 (53.0). Output across the UK as a whole grew
at a faster pace, the sharpest since July 2011. By sector in Scotland, a solid increase in services activity
was sufficient to offset the first contraction in manufacturing output since production was disrupted by bad weather in December 2010.

New Business:

New business received by firms operating in Scotland's private sector increased for the first time in four months in December. Furthermore, the rise in new business inflows was the steepest since April 2011,
and solid overall. In line with the overall trend, business wins by service providers increased at the fastest rate for nine months, countering a fourth successive fall in new orders received by Scotland's goods
producers. New business received across the UK as a whole also increased solidly in December, and at the steepest rate for three months.

Backlogs:

Scotland's private sector companies cleared outstanding business for the fourth month running during
December. The reduction in backlogs of work was solid, albeit the weakest for three months. Reflecting a decrease in new business received in the sector, Scottish manufacturers again reduced work-in-hand faster than their service sector counterparts. Reports from service sector respondents indicated that
greater capacity had underpinned the decrease in business outstanding there. UK-wide data, meanwhile,
pointed to further solid fall in backlogs.

Input prices:

December data signalled that cost inflation faced by businesses in Scotland eased to the slowest in 12 months. This reflected weaker input price growth in the manufacturing sector, where cost pressures were
notably weaker than those faced by service providers. Nevertheless, with inputs such as energy, food and
fuel up in price on the month, cost inflation overall remained stronger than both the average registered throughout the series history (58.7) and the rate registered by companies across the UK as a whole in December.

Output prices:

Output prices in Scotland increased again during December, extending the current sequence of inflation to two months. Moreover, with both manufacturers and service providers north of the border raising
charges during the month, output prices overall grew at an accelerated pace that was the sharpest since
July 2011. Factory gate prices were raised at a faster rate than tariffs in the service sector, which increased for the first time in four months. Output price inflation across the UK as a whole was broadly unchanged in December, with charges raised only marginally on balance.

Employment:

Employment in Scotland's private sector increased for a second straight month in December. That said, the overall rate of job creation eased since the previous survey period and was only modest. The slowdown primarily reflected weaker jobs growth at service providers, where employment was up only
marginally on the month. Headcounts also increased at a slower pace in the manufacturing sector, which
saw the weakest rate of job creation since June 2011. Employment within the UK private sector economy remained broadly unchanged in December.

© Markit Economics Limited 2012 2

The Bank of Scotland PMI is compiled by Markit for Bank of Scotland and is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 600 private manufacturing and service sector companies. The panel has been carefully selected to accurately replicate the true structure of the Scottish economy.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding
'the same'.
Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.
Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data relating to the underlying (unadjusted) numbers, first published seasonally adjusted series and subsequently revised data are available to subscribers from Markit. Please contact [e-mail].

About Bank of Scotland

Bank of Scotland is part of Lloyds Banking Group, the UK's largest retail bank and Scotland's largest financial services employer. Established in 1695, Bank of Scotland is the UK's oldest surviving clearing bank. Our goal is to be the best financial services provider in Scotland. We believe this means we must build a leadership position not on the basis of scale but on the foundations of reputation and recommendation.

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