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Next week's economics: 4-8 Feb

The UK economy is growing only slowly – and not just because of Brexit, next week's numbers will show
January 31, 2019

The Bank of England might tell us next week that interest rates will rise later this year – assuming some kind of smooth Brexit. Its Inflation Report is likely to worry that a lack of spare capacity and rising wage inflation mean there’s a danger that inflation will remain above target for some time unless rates rise.

Such a forecast, however, will be only a weak signal. It’ll be conditional upon what happens with Brexit – which is something nobody knows.

What’s more certain is that growth now is slow, Purchasing managers are likely to report only very slight expansions in both services and construction, consistent with quarterly GDP growth of only around 0.2-0.3 per cent.

Other numbers will show that the housing market is especially weak. The Halifax could report that annual house price inflation is only around 1 per cent – which means that prices are falling in real terms. The RICS is likely to confirm not only that prices are falling in many areas but also that demand is weak and that estate agents don’t expect prices to rise much at all this year.

Which poses the question: to what extent is this weakness due to uncertainty about Brexit holding back demand, and to what extent to other factors? Other data in the week will remind us of the latter.

Official figures from Germany are likely to show that although industrial production recovered in December after slumping in November, it is still on a downward trend: it’s likely to be more than 1 per cent down quarter on quarter. This reflects trouble in the car industry, China’s slowdown, and fears of the trade war as well as (and perhaps more than) uncertainty about Brexit. And purchasing managers’ survey of the services sector in the eurozone generally  is likely to confirm the flash survey, which showed that growth has slowed to almost nothing.

There might, however, be a glimmer of hope here. German data on factory orders might show that these rose in the fourth quarter, and are well above the trough they hit in the summer. This will add to hopes that the eurozone's slowdown might be short-lived.