The UK economy is growing moderately, next week’s figures could show.
A purchasing managers’ survey on Wednesday is likely to show that activity in the services sector is growing at much the same rate as in the last few months – which is consistent with GDP growing at around 0.3 per cent quarter on quarter. Another purchasing managers’ survey on Tuesday, however, could show that construction activity is barely growing at all. This would be consistent with uncertainty about Brexit depressing investment in longer-lived assets.
Purchasing managers might, however, report stronger activity in manufacturing. Recently, though, surveys have pointed to stronger output than official data have reported. This might be because exports have a high import content and so net output – which official data measure better than surveys – has been weaker than one might expect from strong export orders.
A big reason for the strength of manufacturing exports is simply that our main trading partner, the eurozone, is doing well. This should be evident in next week’s figures. Final purchasing managers’ surveys should confirm flash surveys which showed strong growth, with manufacturing growing faster than at any time since 2011. Official data should confirm this. On Wednesday, we should see that retail sales rose in the eurozone in August, reversing July’s dip; this would leave sales around 2.5 per cent higher than a year ago. And on Friday we should see a rise in German factory orders, putting them around 5 per cent up on a year ago.
We might also see signs of a pick-up in the housing market. Halifax’s house price index could show that prices have risen in the past three months, having fallen in the first half of the year. While there are signs of a slight pick-up in demand and mortgage lending, a big reason for the recovery is simply that there’s a shortage of supply.
Bank of England data on Thursday might show a constraint on house prices, though. They’ll show that there is ongoing negative housing equity withdrawal – that is, spending on houses exceeds mortgage lending. This tells us that banks still require large deposits before giving mortgages, which is a constraint upon demand.
US data are likely to be affected by Hurricane Irma. This might have caused a slowdown in manufacturing activity as reported on Monday by the ISM, and might well result in very weak non-farm payrolls on Friday. Economists believe the underlying economy is doing moderately well, but the Federal Reserve will probably want to see a bounceback from Irma before raising interest rates again.
