Next week’s main event will be Wednesday’s Budget. This is likely to show that the government will borrow much more in coming years than predicted in March. This will be mostly due to the OBR revising down future economic growth, although the chancellor might also announce a rise in discretionary borrowing, a small loosening of fiscal policy.
Figures released the day before the Budget might show that net borrowing is on course to undershoot the OBR’s forecast this year: PSNB so far this year is likely to be around £40bn, compared with £42.5bn in the same period last year and a forecast for 2017-18 as a whole of £58.3bn. Political commentators might interpret this as giving the chancellor 'room for manoeuvre'. This is wrong. The OBR will revise down trend growth because of lower productivity growth. That means there’s less scope than previously thought for fiscal easing – although still some.
Other figures might show a cost of austerity. The CBI could report that retail sales are struggling; last month, it reported a big drop in them. This is due in large part to falling real wages, which are themselves due to low productivity and fiscal austerity.
Manufacturing, however, is doing well. The CBI is likely to report that orders and output expectations are high, albeit not perhaps as much as in recent months.
European numbers will show why this is. Thursday’s flash purchasing managers’ surveys should show that manufacturing activity is growing very quickly – perhaps at its fastest rate since 2011. Other surveys should confirm this. Germany’s Ifo index might beat last month’s record high – although expectations for future activity aren’t quite as sky high as current trading conditions. And the National Bank of Belgium could report that business confidence is at a six-year high.
Granted, purchasing managers might report slightly slower growth in the services sector – although this will still be good. But the overall picture is of an economy doing very well.
In the US, we should also see signs of growth. Durable goods orders could post a third successive monthly rise, consistent with economists’ view that the economy is growing at a 2-3 per cent pace. Sales of existing homes, however, might be down on a year ago. This, however, is no cause for concern yet: it reflects a lack of supply rather than of demand.
