The UK economy might be picking up, next week’s news might say.
On Tuesday, the CBI is likely to report that manufacturing output and orders are very strong – both for the domestic market and exports. This, however, might overstate growth in value-added, because output has a high import content.
Then, on Thursday, the CBI could report that retail sales are growing nicely: last month’s survey showed that retailers expected good growth in August, although the bad weather might have dampened spending. This might be encouraging, to the extent that it could signal that consumers are spending more in anticipation of the squeeze on real wages coming to an end.
Any pick-up, however, will come from a low base. On Thursday, the ONS is likely to confirm that GDP grew by 0.3 per cent in the second quarter – implying that GDP per person has more or less flatlined this year. The breakdown of the figures should show that consumer spending and (to a lesser extent) net trade added to quarterly growth, but that business investment was yet again lacklustre.
This might be worrying, as weak capital spending both causes lower future output (as workers have less to work with), and is diagnostic of it; companies spend less because they are worried there might be weak demand.
The breakdown could also show that the share of profits in national income rose in the second quarter, thanks to the squeeze on real wages and a small rise in productivity. This share, however, remains around its long-term average; the main cause of the wage squeeze in recent years has been weak productivity, not employers grabbing a bigger share of income.
Other figures will show that overseas economies are doing well.
Although US durable goods orders might fall after a strong rise last month caused by increased aircraft orders, the trend in them should be upwards – reminding us that the economy is growing at a steady 2-3 per cent rate.
In the eurozone, Germany’s Ifo survey could show that growth is at its highest rate since the survey began in 1991. Purchasing managers’ surveys for the eurozone generally won’t be quite so impressive, showing that growth has dipped lately – although it should still be close to a six-year high.
But can this last? The Ifo survey should show that companies’ expectations aren’t especially high, and the National Bank of Belgium’s business confidence indicator could be flat, and below the spring’s readings. These point to growth moderating – albeit not alarmingly – in the next few months.
