UK growth has slowed to almost a standstill, next week’s numbers might show. On Monday, purchasing managers could report the weakest growth in the construction sector since last March, when the 'Beast from the East' halted building work. And the following day they could report almost no growth in the services sector. It’s possible, in fact, that both surveys could show falling activity.
This is partly because of fears of a no-deal Brexit – uncertainty causes firms to postpone investments in long-lived assets until the fog lifts.
But this is not the whole story, as other figures next week will show. In the eurozone, purchasing managers should confirm that growth in the services sector is still very weak. And official figures are likely to show that although retail sales in the eurozone recovered a little after December’s fall, they are no higher now than in the summer. Such weakness is hitting the UK not just by curbing exports, but also because it depresses business confidence and hence investment intentions.
The European Central Bank (ECB), however, will do nothing about this. It is likely to say on Thursday that interest rates will stay unchanged because it expects inflation to rise towards its “close to” 2 per cent target: it has, however, consistently overpredicted inflation in recent years.
We’ll also get more evidence next week of weakness in the housing market. The Halifax could say that prices now are little different from what they were a year ago, and have fallen since the summer. This is both an effect and cause of weak activity elsewhere. Effect because pessimism naturally reduces demand for expensive housing. And cause because low housing turnover depresses spending upon housing-related items such as furniture and carpets.
News from the US, however, should be better. Friday’s labour market report could show a net rise in jobs of over 200,000 and a fall in the unemployment rate to 3.9 per cent – close to a 50-year low. This is triggering a gradual rise in wage inflation: annual growth in average hourly earnings could rise to over 3.3 per cent, its highest for almost 10 years.
It’s not clear how markets will react to this: will there be relief at ongoing growth or fears of higher interest rates? Historically, stock markets have done well as rates rise as long as the economy grows nicely. But we’ve no assurance this will remain the case.