The UK is on the verge of recession, next week’s figures could show. Purchasing managers are expected to report that construction activity fell again in October – thanks in part to companies putting investment projects on ice because of Brexit uncertainty – while the services sector stagnated. With manufacturing also in the doldrums, this would be consistent with GDP falling a little in the month.
The housing market is not helping here. The Halifax is likely to report that house prices were flat in October, and have risen only around 1 per cent in the past 12 months – meaning that they are falling in real terms. And the RICS is expected to say that prices are flat and that new supply and demand are both falling. This is bad for consumer spending, as a good chunk of this is tied to housing turnover more than to prices.
We’ll see the Bank of England’s response to all this next week. Thursday’s MPC meeting is likely to leave interest rates unchanged. Governor Mark Carney might say that the Bank is ready to loosen policy if we do enter recession, but might also warn that if we do not he could raise rates because a lack of spare capacity and a tight labour market could push up inflation.
Meanwhile, the eurozone might show some signs of stability. In Germany, factory orders might be levelling off after 18 months of decline. And industrial production might even show a second successive monthly rise – although it will still be almost 1 per cent down in the third quarter as a whole.
Official figures for the region as a whole could show that retail sales volumes rose slightly in September, leaving them slightly up in the third quarter.
US figures could show a slowdown in productivity growth, with output per worker-hour rising at an annualised rate of less than 2 per cent in the third quarter, after 2.3 per cent growth in the second quarter. The significance here lies in the long-term slowdown. In the last five years, productivity has risen only 1.2 per cent despite the fact that it should do well in economic upturns. That compares with an average annual rise of 2.2 per cent in the 50 years before the 2008 crisis. This is clear evidence of a slowdown in trend growth – of what former US Treasury Secretary Larry Summers calls secular stagnation.
