How are UK manufacturers coping with the threats of a no-deal Brexit and a trade war? We’ll find out in Tuesday’s CBI quarterly survey.
The good news here should be that underlying growth in both domestic demand and overseas markets are sustaining order books. The bad could be that uncertainty is dampening business confidence and investment intentions. And if investment stays weak, it's unlikely that the recent pick-up in productivity will continue.
As for overseas demand, next week will bring mixed news from Europe, On the one hand, Germany’s Ifo survey and the National Bank of Belgium’s business confidence measure might both be a little stronger than they were early in the summer, while purchasing managers should report that service sector growth is steady. And the ECB should report that bank lending is still growing steadily at around 3 per cent year on year, albeit with consumer credit being especially strong. All this points to decent growth in the near term.
On the other hand, purchasing managers might also report that while manufacturing is still growing, it is doing so at its slowest rate for two years. Worse still, the ECB could report a marked slowdown in the M1 measure of the money stock. Historically, this has been a lead indicator – with a lag of a few months – of slower output growth.
In the US, meanwhile, we should see continued growth. Although durable goods orders are likely to have fallen – because growth in orders in August were boosted by one-off aircraft sales – the underlying pattern should be a continued uptrend.
On Friday, official figures are likely to show that real US GDP growth slowed in the third quarter from an annualised 4.2 per cent to a little over 3 per cent – although this is still strong by post-2009 standards. This would be consistent with the Fed’s forecast that growth will slow down, to around 2.5 per cent next year. It should not, therefore, alter expectations that the Fed will raise interest rates again in December, and twice more next year. Bond markets should not, therefore, take very much relief from this news.
