The UK economy is growing only slowly, next week’s figures could show.
On Thursday, the NIESR could estimate that GDP grew by 0.4 per cent in the three months to August. This will be an improvement on recent months, but only because a drop in GDP in May falls out of the three-month rolling average. The overall message will be that growth recently has been slower than it was at the end of last year.
The weakness is in both services and manufacturing. On Tuesday, purchasing managers are likely to report that the services sector is growing more slowly than in the spring. And on Friday official figures should show that while manufacturing output grew in July, it is still below the winter’s levels.
The same day, trade figures are likely to show that the deficit has widened in the last three months, as import volumes have grown faster than exports, implying that net trade is subtracting from growth. This will remind us of what economists have long known – that a weaker pound does not give a great stimulus to the economy.
Weakness will also be evident in the housing market. The Halifax house price index is likely to show that prices have fallen so far this year. And the RICS is expected to report that they’ve been flat in recent months. One thing helping to support prices is a lack of supply – which is not a sign of a healthy market.
Things should be better in the eurozone. Although final purchasing managers’ surveys should confirm that service sector growth has fallen to a seven-month low, it will still be quite strong. And official figures should show that retail sales in the region generally are on a good uptrend, as is German industrial production.
On Thursday, we’ll see the ECB’s latest assessment of the economy. ECB president Mario Draghi is likely to repeat that although quantitative easing might end this year, interest rates will remain at current levels “for an extended period of time”. This is because inflation is still below its target, and is expected to remain so for some time.
We should also watch for the Bank of England’s survey of households’ inflation expectations on Friday. These might well have risen in response to recent rises in inflation. Whether this matters is, however, not clear.
