Deciphering the data


Trevor WilliamsThe analysis and application of economic data can galvanise business planning, and minimise risk. Professor Trevor Williams, Chief Economist and Yuri Polyakov, Head of Financial Markets at Lloyds Bank dig into the details.

With a constant stream of facts, theories, figures and projections available 24/7 in today’s society, it’s not easy to identify and analyse the data that matters most to your business. But doing just that could hold the key to its long-term sustainability.

“By cutting through the noise that emerges from across financial markets,” Yuri Polaykovsays Professor Trevor Williams, Chief Economist, Lloyds Bank, “the Bank’s research teams take raw data and distil it into insight that will be immediately useful to businesses.”

This is an essential de-cluttering of information, agrees Yuri Polyakov, Head of Financial Markets, and one that astute businesses utilise to help shape their most central activities. “Businesses are acutely aware of the need to factor moves in the market environment into their strategic and risk management planning. But they can be put off by the depth and amount of data that emerges.

Monitor the data that matters to you

The type of data businesses value most will largely depend on their sector and ambitions. However, Gross Domestic Product (GDP) emerges as one of the economic indicators most monitor closely.

“GDP shows overall growth in the economy,” says Trevor, “so it’s a good indicator of its general direction. Mid-market businesses will want to delve deeper into whether any growth in GDP is investment or consumer-led, for example, as these activities will impact firms differently depending whether their sales are driven by what other companies spend their money on (e.g. car leasing) or by consumers (e.g. household spending on durable goods).

“This could point to potential higher demand for goods and services, helping businesses plan to increase their supply to meet that demand through investing in labour or equipment.”

Other factors Trevor finds to be of keen interest to mid-market firms include:

  • interest rate movements
  • the cost of finance
  • borrowing levels
  • the strength of the pound
  • activity in key export markets.

Access to up to date, accurate information can prove essential in helping to formulate truly responsive and robust growth and investment strategies.

Review the information

Sector differences aside, there is some commonality in the way clients use the information the Bank provides, particularly as this best informs their planning cycle.

In Yuri’s experience, most mid-market businesses use the data for two key activities:

  1. Reviewing existing risk management policies which are designed to mitigate against unwanted market moves.
  2. Periodic monitoring of the impact of economic changes on expected performance of the company.

This process is as relevant for a business operating in a retail environment as for one in manufacturing or transportation, even though the raw data that feeds the process may be different.

“There is demonstrable merit in taking time to review the way you access and interpret economic data,” says Trevor. “Expert advice can be essential. Our extensive experience across business sizes and sectors means we can feed the desire for information by calibrating macro-economic messages relevant to your business planning.”

Dynamic interpretation

For some businesses, considering an economic forecast in the broad context of their strategic planning appears sufficiently forward-thinking.

“The challenge with that approach,” says Yuri, “is that economists base their forecasts on the current market environment. However, every time the market moves or an event occurs, the forecast will move as well. It’s a continual and complex cycle. If you want to understand the true extent to which financial markets can impact the performance of your business, then using simple economic forecasts is not enough.”

The real value can be found in a more dynamic approach. Interpreting the data to add value to your planning process, however, can take a degree of specialism that most businesses don’t have access to internally. That’s where the Bank’s financial markets team comes in.

Manage risk

“We help businesses understand their sensitivity to movements in different market variables, such as FX, interest rates, commodity prices or inflation,” Yuri explains. “We help them build scenario analysis based on market and historical information to show how much the markets can deviate from the forecast. Then we help create strategies to deal with those scenarios.”

If, for example, economists indicate that interest rates are going to increase by 50 basis points, questions to consider include:

  • What is the likely impact on five or 10 year swaps?
  • What is the likely impact on your funding portfolio?
  • What is the wider FX implication of a move in Sterling interest rates?
  • If interest rates go up, what impact would it have on commodity prices?

Establish your position

Reviewing and utilising this information is valuable whether you’re a business actively pursuing growth or at a mature stage of the lifecycle, and regardless of the stage of the economic cycle.

“Growth businesses will see constant change in their risk exposures, whereas risk types for mature businesses will be the same,” Yuri notes. “However, all businesses are exposed to market movements. Similarly, although the focus may change from liquidity to inflation to interest rates, this information is always important because these risks still exist.”

“Financial Directors need to be in a position where at any given time, they can say to stakeholders or senior management: ‘I know to what extent the financial markets can impact our performance, I know what we can tolerate, and I know what we’re going to do about it’,” he concludes. “The right view of economic data puts you in that position.”

Top tips to optimise your economic resources

  1. Make sure you know the answers to two very important questions:
    • To what extent will changes in the economic environment impact your business within a one or two-year timeframe?
    • Given your performance KPIs, how much market-driven volatility can your business take?
  2. Be flexible. Ensure you have enough flexibility in your risk management strategy to respond without over-paying for protection.
  3. Scenario-plan. For any business, there are at least three market perspectives that need consideration:
    • The current economic forecast.
    • The historical view of market variables.
    • A well-informed projection of the year ahead.


1. The CPCM is Lloyds Bank’s countrywide, biannual survey giving a representative, regular view of 500 business leaders’ confidence in the UK commercial property market. They include principals (house builders, developers and investors) and advisors (agents, surveyors and consultants) in small, medium and large property businesses. For more information click here.

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