The UK is not benefiting much from good growth overseas, next week’s numbers will show.
Although official figures from Germany, France and Italy are likely to show that industrial production flatlined in June, this would follow strong rises in recent months. Taking the second quarter as whole, output is likely to be strongly up – by over 2 per cent in Germany.
In this context, UK figures will be lacklustre. On Thursday, the ONS is likely to confirm its estimates contained in the GDP data, that manufacturing and construction output fell in the second quarter. One reason for this should be evident in Thursday trade figures. They should show that the trade gap narrowed only slightly in the second quarter, despite strong growth overseas, as imports grew almost as much as exports.
NIESR data on Tuesday are likely to show that sluggish activity continued last month. They are expected to estimate that GDP grew only 0.3 per cent in the three months to July, which means growth has been more or less steady at a slow pace this year.
One especial area of weakness is the housing market. The Halifax’s house price index might post another fall in July, which would mean that prices are almost 2 per cent down since December. The RICS is likely to add that price falls have been especially large for prime central London property, and that sales generally are faltering. One thing underpinning prices, however, is a shortage of supply – although this betokens a dysfunctional market.
In the US, there will be two significant releases. On Friday, consumer price inflation might show slight rises in both the headline and 'core' rates (the latter excludes food and energy) – to around 1.8 per cent in both. Both, though, will be significantly down on earlier this year, which means that the apparently tight labour market is not raising inflation. This won’t stop the Fed raising interest rates again this year, but it means that doing so will be an attempt to normalise monetary policy, rather than a response to inflation.
Wednesday’s numbers will remind us of a big problem. They’re likely to confirm that productivity growth has slowed markedly. Output per hour in the non-farm business sector is likely to have grown only 0.6 per cent per year in the last five years, compared with 2.2 per cent in the 50 years to 2007. This tells us that trend growth has slowed a lot. And this in turn means that real interest rates will stay very low.
