Next week will bring evidence of economic recovery. Flash purchasing managers’ surveys could point to pick-ups in manufacturing activity in both the UK and eurozone.
We must, though, be careful in interpreting these. They tell us about the proportion of companies enjoying increased activity, not the size of those increases. If every company were to report a tiny rise in output, these indices would hit 100, their highest possible value, even though the recovery was very weak.
Indeed, other evidence might show this to be the case. In the UK, while the CBI’s survey might show a big rise in manufacturers’ business confidence – from rock-bottom levels in April – it is also likely to show that order books and output expectations are still depressed. It is also likely to say that investment intentions are low: increased uncertainty and spare capacity offset the resumption of projects that had been delayed by the lockdown.
And in Germany, while the Ifo survey might show a recovery in companies’ expectations to pre-lockdown levels (which weren’t that great), it will also show that current activity is still below those levels.
The National Bank of Belgium’s measure of business confidence could also be lacklustre. Although up from two months ago, this too will be well below the winter’s level.
In the UK, retail sales volumes should post a healthy rise, thanks to the lifting of the lockdown releasing pent-up demand. What the numbers won’t tell us, though, is how persistent such strength will be. There’s a danger that sales will drop back as unemployment rises and as pent-up demand fades away. The fact that so many non-food retailers have recently announced job cuts betokens a lack of confidence.
We’ll also get news on the public finances next week. These could show record peacetime borrowing in the first three months of this financial year – of around £150bn or over 30 per cent of GDP. This, though, is the least of our problems.
