UK companies’ cash flow is deteriorating. Bank of England figures next week are expected to show that non-financial companies' bank deposits rose only around 1 per cent in the past 12 months, the weakest growth since 2011. This matters, as such growth has been a lead indicator – albeit imperfect – of output growth; slowdowns in corporate cash holdings in 2001, 2007-08 and 2011 all led to falls in manufacturing output growth.
Bank data will also show that corporate borrowing is increasing. This is more likely to be due to some companies borrowing to prepare for Brexit or to plug gaps in current cash flow rather than to a pick-up in capital spending.
This deterioration in companies’ finances might, however, come at the same time as signs of strengthening in the housing market. The Nationwide could report another small rise in house prices, confirming that these have risen somewhat since the winter’s lull. This would be consistent with Bank of England data which could show that mortgage approvals have risen since March and are now near a two-year high. Whether this pick-up can continue if the economy slows down as much as corporate cash flow suggests is, however, doubtful.
We could also see a recovery in the US housing market. S&P could report on Tuesday that house prices, having fallen in the second half of last year, have risen at an annualised rate of 5 per cent so far this year. Consistent with this, the Conference Board is likely to say that consumer confidence is still close to a 19-year high. With durable goods orders likely to post a small increase, all this will suggest the US economy is still growing moderately.
In the eurozone, we might get slight signs of comfort. The European Central Bank (ECB) should report steady growth in the M1 measure of the money stock, at just over 7 per cent. This has been a good lead indicator of economic growth, and while it is not pointing to a strong recovery, nor is it forecasting a downturn.
Current conditions, however, are not so good. Friday’s figures could show that unemployment has stopped falling, with the rate now stuck at 7.5 per cent.
Other numbers the same day should show consumer price index inflation stable with both headline and core rates (that is, excluding food and energy) just over 1 per cent. With the inflation target just under 2 per cent, this means the ECB has set monetary policy too tight. This is one reason why many expect some form of easing next month – although many economists doubt whether more negative interest rates would actually do much good.
