UK manufacturers are doing okay. Next week’s CBI survey is likely to show that export and domestic order books are still above normal and that companies expect to expand output in the next three months
This is happening despite weakness in the eurozone. Purchasing managers might report next week that growth in the region is at a four-year low – implying barely any growth at all. And forward-looking surveys might show little sign of an imminent upturn. The ZEW survey of finance professionals will show optimism well below its long-term average, although perhaps slightly up since the autumn. And the National Bank of Belgium might report that business confidence has fallen to a five-month low.
One reason for the resilience of UK exports is that our second-biggest trading partner, the US, has been growing nicely. Next week’s numbers will give mixed signals here. On the one hand, durable goods orders might show a small increase, consistent with the manufacturing sector continuing to expand nicely. On the other, though, sales of new houses might be sharply down since the start of 2018, suggesting that the housing market is cooling off. This, along with the government shutdown, is a cause for concern about what is otherwise – for now at least – a healthy economy.
UK retailers, by contrast, are struggling. If next week’s CBI survey confirms retailers’ expectations last month it will show that sales were weak at the start of January. Tuesday’s labour market numbers will be consistent with this. They might show that unemployment has risen slightly in recent months.
Despite this rise, wage growth is picking up. In the three months to November it could have reached an annual rate of 3.4 per cent, its highest rate since July 2008. This means that real wages are now rising more than 1 per cent year on year, the fastest growth since 2016.
This might not last, however. Tuesday’s figures will also show that total hours worked have increased significantly recently which – given the weak growth in GDP – means that productivity has fallen back after a nice rise earlier last year. If productivity is not growing, then either real wages must fall back or profit margins will be squeezed. Whichever it is – which will depend upon bargaining power which differs from company to company – somebody will suffer.
