The UK economy is expanding moderately, next week’s numbers should show.
The ONS is likely to report that real GDP grew by around 0.2 per cent in July, implying growth of around 0.4 per cent in the previous three months. Retail services, construction and industrial production are all likely to have contributed to this.
One thing that’s not doing so, however, is net trade. Monday’s figures are likely to show another £12bn deficit in goods in July, leaving the deficit in the last three months near a record high. This is due more to weak exports than to strong imports. This vindicates the warning of serious economists back in 2016, that sterling’s weakness would not boost net trade much.
The expansion is, however, creating jobs: unemployment could drop again, to its lowest level since 1975. But this is not igniting wage growth: annual wage inflation might be stuck around 2.4 per cent, which is lower than it was at the start of the year. We might, however, get a reason for optimism here. Other figures could show that total hours worked were roughly flat in the May-July period, as a fall in average hours offset higher employment. With GDP growing during this time, this means labour productivity is now rising. And this, combined with low unemployment, should eventually raise real wage growth.
In the eurozone, the main news should be that industrial production rose in July, having fallen 0.7 per cent in June. This would leave output lower than it was at the end of last year, but higher than in the spring. This would be consistent with the economy pulling out from the soft spot it suffered earlier this year.
In the US, Friday’s official figures should show rises in both retail sales and industrial production in August, which would reinforce economists’ expectations that real GDP is growing well in the current quarter – albeit not quite as much as the 4.2 per cent rate in the second quarter.
Such growth might, though, be generating inflation. Although Thursday’s figures should show that both core and overall CPI inflation were more or less unchanged in August (at 2.4 and 2.9 per cent, respectively) both are well above last year’s rates. This is why most economists expect the Fed to raise interest rates later this month, and again in December.
Equity investors should get some good news on Thursday. US capital flows figures then could show that foreigners have recently become net sellers of US equities. This means that an indicator which has been bearish for global stock markets is now turning bullish.
