The UK economy is growing slowly, next week’s numbers could show.
On Friday, official figures could show that real GDP grew by 0.2 per cent in June, helped by small rises in construction and industrial production. The same day, NIESR could estimate that the economy grew by a further 0.1 per cent in July.
It’s possible that growth has been depressed by the World Cup and the heatwave, both of which kept people out of the shops in June. Friday’s figures, however, will highlight a more fundamental problem. They are likely to show that the UK’s trade deficit in goods shrank only slightly in June, which would mean the deficit in the quarter as a whole was probably the second highest on record, thanks to a drop in export volumes.
Because of this, second-quarter GDP data should show that net trade subtracted significantly from growth. Instead, the expansion then was fuelled largely by consumer spending (retail sales rose sharply in April and May), with investment adding a little.
We might, however, get some good news on this front next week. Official figures from France and Germany might show that industrial production rose in June, with German output showing good quarter-on-quarter growth. This should raise hopes that the slowdown earlier this year was only temporary. If so, it augurs well for UK exports. Sadly, however, uncertainty about the terms of Brexit might prevent UK exporters from expanding to take much advantage of this recovery.
Other figures next week will highlight a further problem – a stagnant housing market. Figures from the Halifax could show that annual house price inflation has fallen to around 1.5 per cent – which means prices are falling in real terms. And the RICS is expected to say that estate agents report weak sales and expectations that prices will stay flat. This suggests that the rise in consumer spending in the second quarter is likely to be unsustainable; it was due in part to a recovery after March’s snows depressed spending. A weak housing market depresses demand for a lot of housing-related items.
In the US, meanwhile, Friday’s consumer price data might be important. These could show headline inflation above 3 per cent for the first time since 2011 and core inflation at its highest since 2008 at 2.4 per cent. Although the increase in the latter is only very gradual, it could firm up expectations for more rises in US interest rates: traders expect quarter-point increases in September and December.
