The UK economy grew nicely in the third quarter, next week’s numbers could show. The Office for National Statistics (ONS) is likely to say on Friday that real GDP rose by 0.7 per cent in the quarter, after 0.4 per cent growth in the second quarter, with industrial production and construction both making good contributions to the expansion.
Such growth is, however, flattered by the fact that the economy was unusually weak in April. In truth, the upturn has been moderate since the spring. Monday’s purchasing managers’ survey will remind us of this, showing that service sector growth has been moderate and steady since then.
What’s more, the composition of such growth is unbalanced. Although Friday’s figures should show that net exports contributed a little to third-quarter (Q3) growth as export volumes rose faster than import volumes, they could also show that business investment has flatlined for months. This means that Q3’s growth was driven largely by consumer spending.
This, though, might not be sustainable. The Royal Institution of Chartered Surveyors (RICS) and the Halifax are both likely to say next week that the housing market is weak: in fact, the Halifax might report a third successive monthly fall in prices. This weakness is likely to weigh down consumer spending.
In the eurozone, meanwhile, we should see mixed signs on the health of industry. Although output in Germany, France and Italy should have risen in September, in Germany this will only partially reverse falls in the previous three months, leaving output sharply down in the third quarter.
We might also get worrying news from China, where the People’s Bank of China could report a further slowdown in growth in the M1 money stock. This has in the past been a good lead indicator of slower economic activity and hence falling commodity prices. Investors in emerging markets and mining stocks should be worried by this.
In the US, the Federal Reserve is likely to keep the Federal Reserve (Fed) funds rate unchanged on Thursday. Friday’s figures will show a justification for doing so: producer price inflation (excluding food and energy) is likely to have fallen since early summer. Other figures, though, will remind us why the Fed is expected to raise rates in December. The Bureau of Labor Statistics (BLS) will say that job vacancies are at their highest level since records began in 2000, and far exceed the number of officially unemployed. The Fed will worry that such a tight labour market will eventually raise inflation.
