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Next week's economics: 11-15 Nov

Next week's numbers could show that UK GDP expanded nicely in the third quarter – but this will overstate the health of the economy
November 5, 2019

The UK economy has perked up a little. The ONS is likely to say on Monday that GDP rose by around 0.5 per cent in the third quarter, albeit after a weak second quarter. The rise is likely to be driven by a pick-up in manufacturing in September, perhaps helped by pre-Brexit stockpiling, and by a rise in retail sales; data later in the week could show that these were flat in October, however.

Things won’t all be cheery, though. Other figures are likely to show that business investment fell in the third quarter, which means it has flatlined since 2016. Brexit uncertainty is one reason for this weakness, but not perhaps the only one.

And Tuesday’s figures could show that unemployment has levelled off at just over 1.3m or 3.9 per cent of the workforce – although there are another 1.8m people not in the labour force who would like a job.

This excess supply of labour is capping wages. Tuesday’s figures should show that wage inflation has stabilised at just under 4 per cent. And with hours worked flatlining in the third quarter, productivity should have risen in the quarter, which implies that unit wage cost growth has dipped. This reduces the threat of inflation.

Other data will corroborate this. Although CPI inflation might rise to 1.9 per cent, this will be due to food and petrol price falls last October dropping out of the data rather than to new inflation. In fact, producer price data will show inflation quiescent, with output price inflation at a three-year low and input prices falling year on year.

In the eurozone, official figures should show that industrial production was flat in September after August’s rise. This would leave output almost 1 per cent down in the quarter.

Industrial production in the US might also be weak, although this will be partly due to a strike at General Motors. Perhaps of more concern will be the survey from the New York Fed, which could show both activity and expectations among manufacturers in the region to be weak.

Such gloom should, however, be mitigated by news of a rise in retail sales. What should also comfort investors will be Wednesday’s numbers showing that CPI inflation is low and stable – which means the Fed can afford to focus on combatting the threat of a slowdown.

Of importance to equity investors will be Friday’s US capital flows figures. These should show that foreign investors have been net sellers of US equities in the last 12 months – a sign of weak sentiment. This has for years been a good predictor of rises in global share prices.