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Next week's economics: 19-23 Feb

The eurozone economy is supporting UK growth, but UK workers aren't sharing in the upturn, next week's numbers will show.
February 15, 2018

The eurozone economy is booming, next week’s figures could tell us.

On Wednesday, purchasing managers could report that growth in the region is around a 12-month high, with both manufacturing and services growing strongly. Other surveys could corroborate this. The National Bank of Belgium could report that business confidence is at its highest since 2011. And Germany’s Ifo survey might show manufacturing activity growing at its strongest level since the survey began in 1991. Perhaps the only dark spot in all this could be that Ifo’s survey will show that confidence isn’t as high as current trading conditions, which hints at a slight slowdown later this year.

UK manufacturers are sharing in this upswing. The (Confederation of British Industry (CBI) is likely to report on Tuesday that export orders and output expectations are still high.

Europe’s growth, however, is not narrowing the UK’s trade gap. On Thursday, the Office for National Statistics (ONS) will give us its second estimate of fourth-quarter GDP growth. This should confirm that the economy expanded by 0.5 per cent. The news will be in the expenditure breakdown. It is likely to show that net trade actually subtracted from growth, as imports rose faster than exports. This might not be too bad, however. The figures could also show a pick-up in business investment, suggesting that the UK is importing more capital goods, although consumer spending – yet again – might be the main contributor to growth.

Such growth should be reducing government borrowing. Wednesday’s numbers will show how much. January usually sees a big surplus as income and corporation taxes roll in. We’ll get a better idea, therefore, about whether public sector net borrowing will hit the Office for Budget Responsibility's (OBR) forecast of £49.9bn this financial year.

Wednesday’s labour market numbers will also be interesting. These could show that hours worked fell in the fourth quarter despite higher output, implying that productivity is surging after a long stagnation. It could be that difficulties in hiring staff are finally forcing companies to increase efficiency.

Such difficulties are not, however, leading to bigger pay rises. The numbers could show that wages rose by around 2.4 per cent in the year to the fourth quarter. This would be a pick-up since the spring, but less than they rose in 2016. It would mean that wages are falling in real terms.

One effect of this might be evident in the GDP numbers, which could show that the share of profits in GDP rose in the fourth quarter at the expense of wages.

Another effect might be seen in Thursday’s report from the CBI. It could show that retail sales growth is moderating – which is a natural effect of falling real wages.