The UK’s post-pandemic recovery is weaker than others, next week’s numbers could show.
The CBI is likely to say next week that manufacturers expect only a modest rebound in output in coming months, even from current low levels, and that both domestic and overseas order books are still low. Consistent with this, market research group GfK is likely to report that consumer confidence is far below pre-Covid levels – albeit due to pessimism about the general economy rather than their personal situation.
News elsewhere, though, might be better. Surveys by the New York and Philadelphia Federal Reserve banks are likely to show that manufacturing activity and expectations are back to long-term average levels. And Germany’s Ifo survey is likely to show that while output remains below pre-pandemic levels, companies are optimistic about a bounceback.
Although output is still depressed in the UK, inflation is bouncing back. Wednesday’s figures could show that CPI inflation rose slightly last month, to around 1 per cent. This largely reflects the recovery in the oil price since May. This is no cause for concern, though. Indeed, there’s still deflation in the manufacturing sector. Producer output prices are likely to be down year on year, albeit less so than in May, while input prices should be around 5 per cent lower than a year ago.
Next week will also see massive government borrowing. Public sector net borrowing so far this year could be around £150bn, a record high. And the Office for Budget Responsibility says the deficit for the year as a whole could top £300bn, around 15 per cent of GDP – a peacetime record. Not only is this not a problem for investors, however, it is a positively good thing. Much of this borrowing will help to boost profits in the second half of this year.
Finally, watch out for capital flows data from the US Treasury. Last month, these showed huge net buying of US equities by foreigners. In the past, such buying has been a sign of excessive exuberance about equities and hence a lead indicator of poor annual returns not just on US stocks, but on global ones too. It remains to be seen, however, whether this strong statistical relationship survives the Covid-19 disruption.
