The UK is on the verge of recession, next week’s figures could show.
Flash purchasing managers’ surveys could show that both manufacturing and service sector output are falling, as political uncertainty exacerbates weak underlying activity. The CBI survey is likely to be consistent with this. It could show that order books are depressed and that companies expect output to stagnate in coming months.
What’s more, consumer spending – which has until recently been powering what little growth we’ve had – is slowing. Official figures next week could show that although retail sales rose a little in November they have been almost flat since the summer. One reason for this is that consumer confidence is low: GfK is likely to say it has flatlined for the last few months at close to a six-year low.
Labour market data could confirm this picture. They are likely to show that unemployment has levelled off at around 1.3m, or 3.8 per cent of the workforce, and that total hours worked are also flatlining.
There are, however, also 1.8m outside the workforce who want a job as well as millions who aren’t working as many hours as they would like. Which means there’s still lots of slack in the labour market. The obvious effect of this will be evident in Tuesday’s wage data. These could show that annual wage inflation was around 3.5 per cent in the three months to October, down from July’s 3.9 per cent.
There will be other evidence next week that inflation is no problem. Although consumer price inflation might pick up to 1.6 per cent, this would be due to a petrol price fall last November dropping out of the data rather than to new inflation. And producer price data could show that input prices are falling significantly while output price inflation, at only 1 per cent, is near its lowest since August 2016.
In light of all this, the Bank of England is likely to leave Bank Rate unchanged at 0.75 per cent on Thursday.
Elsewhere, we could get some encouraging news. Purchasing managers in the eurozone might report that manufacturing activity is at least falling at a slower rate. And in the US, official figures should show a bounce back in industrial production after the end of the General Motors strike. This should be corroborated by surveys from the New York and Philadelphia Feds, which should show that companies expect steady growth in coming months.
For investors, better news should come in capital flows data from the US Treasury. These should show that foreigners have been heavy net sellers of US equities in the last 12 months (albeit not as much so as earlier this year). This suggests that sentiment has been weak, and therefore that share prices should rise in coming months.
