The UK economy is growing well, next week’s numbers should show.
The ONS is likely to say on Wednesday that real GDP grew by around 0.2 per cent in August, with contributions from retailing, construction and industrial production. This would mean that the economy has grown by around 0.6 per cent in the last three months, close to its fastest rate since late 2016.
This growth is partly flattered by a comparison with March, when construction output in particular was depressed by bad weather: the sector is likely to have grown by 4 per cent in the last three months compared with the previous three, which is atypically high.
Nevertheless, there are two encouraging developments here.
One is that retail sales have picked up. This might be because consumers are finally anticipating a rise in real wages; it’s no accident that this should have happened at the same time as productivity (the key determinant of real wages in the long run) has perked up.
The other is that net trade is finally making a positive contribution to growth. Wednesday’s figures could show that the deficit in goods in the last three months narrowed to around £31bn, its lowest since early 2016.
Whether this narrowing can continue is, however, doubtful. It is due more to a slowdown in import growth than to an acceleration in exports; this won’t continue if domestic demand continues to grow.
What’s more, next week’s figures will show that the prospects for UK exporters are diminishing. Official figures will probably show that although industrial production in the eurozone bounced back in August from July’s fall it is lower in the last three months than in the previous three: the same is true of Germany, the region’s largest economy. Weakness in our main trading partner naturally constrains our exports.
One obvious reason for this slowdown is that the global trade war is taking its toll. There is, however, another concern. It’s that a good lead indicator of eurozone activity – the inflation-adjusted annual growth in the M1 money stock – has slowed, from over 10 per cent in 2015 to 4.4 per cent in August. This doesn’t point to a recession, but it is a portent of weaker growth in coming months than we’ve seen in the last couple of years.
