The UK economy is faltering. Purchasing managers’ surveys next week are likely to show that manufacturing activity isn’t growing, that construction is declining, and that the services sector is barely growing at all.
This is partly because of ongoing Brexit uncertainty, which is causing companies to delay investments in long-lived assets such as buildings.
A second reason is that demand in Asia and the eurozone is weak: this isn’t just depressing exports, but business confidence and hence capital spending too. We’ll get evidence of this weakness from next week’s purchasing managers’ reports.
In China, they are likely to show that manufacturing is barely growing at all. And in the eurozone they are likely to confirm flash readings that showed that manufacturing activity is shrinking and that services are growing only slowly. Official eurozone data will corroborate this bleak picture. They are likely to show that unemployment has stopped falling, at 7.6 per cent of the workforce – with over a fifth of under 25s out of work. And while they might show that retail sales recovered in May after April’s drop, this would be consistent with sales flatlining so far this year.
There could, though, be a ray of hope here. The ECB is likely to say that the M1 measure of the money stock has accelerated recently, and is now growing by around 7.5 per cent year on year. This has been a good lead indicator of industrial production, and points to an upturn later this year.
The US, however, is doing better. The ISM is likely to say on Monday that manufacturing activity is growing well, albeit not as rapidly as last year. And Friday’s labour market report should show that the economy created a net 150,000 jobs in June and that the unemployment rate is still around a 50-year low of 3.6 per cent – although a wider measure of joblessness that includes those out of the labour market who want a job is still above 2000’s level.
In part because of that hidden unemployment, Friday’s figures could also show that wage inflation, at around 3.2 per cent, has stopped accelerating. This will reinforce market hopes of cuts in the Fed funds rate later this year.
We’ll also get news on the UK housing market next week. The Halifax’s measure of house prices should show annual inflation of around 4.5 per cent. This is higher than the Nationwide’s reading, although the Halifax’s index has been unusually volatile in recent months. Bank of England data, however, will show that mortgage approvals have been flattish for months, at almost half their pre-crisis peak.
