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Next week's economics: 22-26 July

UK manufacturers are struggling, next week's numbers could show – thanks, in part, to ongoing weakness in the eurozone
July 18, 2019

UK manufacturers are struggling. Next week’s CBI survey is likely to show that output expectations, domestic orders, confidence and investment intentions are all weak.

Uncertainty about Brexit is only one reason for this. Another is that weakness in the eurozone economy is depressing UK exports and confidence. Next week will bring us more evidence of this. Purchasing managers are likely to report that manufacturing activity is falling, while Germany’s Ifo survey could show manufacturers in worse spirits than at any time since 2010. If we’re lucky, though, both might show signs of stabilising.

There might, however, be some glimmers of hope. Purchasing managers could report that services growth is near a 10-month high. And the European Central Bank (ECB) could report on Wednesday that the M1 measure of the money stock is growing at an annual rate of around 7.5 per cent. In the past, this has been a good lead indicator of output growth, and it is sufficiently strong to suggest that this might pick up a little later this year. Other ECB data, however, is likely to show that bank lending growth to both companies and households is only stable, consistent with weak output growth for now.

The ECB’s press conference might also hint at the possibility of a further easing of monetary policy in response to the weak economy and below-target inflation. Many economists, however, believe this would come too late.

It’s not just UK manufacturers that are in the doldrums, though. If next week’s CBI survey confirms retailers’ expectations last month, it’ll report that retail sales fell year on year in July following a terrible June. This could ignite fears that last month’s weakness was due to more than bad weather, and that a desire to rebuild savings, and still-weak growth in real wages, are offsetting the benefits of increased employment. Troubles on the high street might well continue, therefore.

The US, by contrast, is still doing well. The first official estimate of real gross domestic product (GDP) on Friday could show annualised growth of just over 2 per cent. Though down from Q1’s 3.1 per cent, this is still better than the eurozone. UK or Japan are managing. There could also be signs of a pick-up in the housing market, with sales of both new and existing homes rising so far this year after a lull in 2018. And durable goods orders should show a rise, having falling in the past two months.